The sudden collapse last fall of a series of U.S. companies backed by private credit thrust the spotlight on an opaque and growing credit sector on Wall Street.
Private credit, also known as direct lending, is a catch-all term for loans provided by non-bank institutions. The practice has been around for decades, but gained popularity after regulations during the 2008 financial crisis discouraged banks from serving riskier borrowers.
This growth – from $3.4 trillion in 2025 to around $4.9 trillion by 2029 – and the September bankruptcies of auto industry companies Tricolor and First Brands have encouraged some Wall Street figures to sound the alarm on this asset class.
JPMorgan Chase CEO Jamie Dimon warned in October that credit problems are rarely isolated: “When you see one cockroach, there are probably others.” Billionaire bond investor Jeffrey Gundlach a month later accused private lenders of making “junk loans” and predicted that the next financial crisis would come from private credit.
Although fears about private credit have eased in recent weeks in the absence of more high-profile bankruptcies or losses revealed by banks, they have not completely dissipated.
Companies most tied to the asset class, such as Blue Owl Capitalas well as alternative asset giants black stone And KKRare still trading well below their recent highs.
The rise of private credit
Private credit is “lightly regulated, less transparent, opaque, and it’s growing very quickly, which doesn’t necessarily mean there’s a problem in the financial system, but it’s a necessary condition,” Mark Zandi, chief economist at Moody’s Analytics, said in an interview.
Private credit boosters, such as Apollo Marc Rowan, co-founder, said the private credit boom has boosted U.S. economic growth by filling the void left by banks, delivered good returns to investors and made the financial system as a whole more resilient.
Large investors, including pensions and insurance companies with long-term commitments, are seen as better sources of capital for multi-year loans to businesses than banks funded by short-term deposits, which can be volatile, private credit operators told CNBC.
But concerns about private credit – which generally come from the sector’s competitors in the public debt space – are understandable given its characteristics.
After all, it is the asset managers who make private loans that value them, and they may have incentives to delay recognizing borrowers’ potential problems.
“The double-edged sword of private credit” is that lenders have “very strong incentives to watch for problems,” said Elisabeth de Fontenay, a law professor at Duke.
“But in the same way… they actually have an incentive to try to hide the risk, if they think or hope that there might be a way out of it in the future,” she said.
De Fontenay, who has studied the impact of private equity and debt on U.S. businesses, said her biggest concern is that it’s difficult to know whether private lenders are accurately pricing their loans, she said.
“It’s an extraordinarily large market and one that affects more and more companies, and yet it’s not a public market,” she said. “We are not entirely sure the valuations are correct.”
In the November collapse of home improvement company Renovo, for example, black rock and other private lenders estimated its debt was worth 100 cents on the dollar until shortly before reducing it to zero.
Defaults among private loans are expected to rise this year, particularly as signs of strain emerge among less creditworthy borrowers, according to a report from rating agency Kroll Bond.
And private borrowers are increasingly relying on in-kind payment options to avoid defaults, according to Bloomberg, which cites appraisal firm Lincoln International and its own data analysis.
Ironically, although they were competitors, part of the private credit boom was financed by the banks themselves.
The enemies of finance
After investment banking JefferiesJPMorgan and Fifth third By revealing the losses linked to bankruptcies in the automobile industry in the fall, investors became aware of the scale of this form of lending. Bank lending to nondepository financial institutions, or NDFIs, reached $1.14 trillion last year, according to the Federal Reserve Bank of St. Louis.
On January 13, JPMorgan disclosed its loans to non-bank financial companies for the first time as part of its fourth-quarter earnings presentation. The category tripled to around $160 billion in loans in 2025, up from around $50 billion in 2018.
Banks are now “back in the game” as deregulation under the Trump administration will free up capital that will allow them to expand lending, Moody’s Zandi said. That, combined with the entry of new entrants into the private credit sector, could lead to a lowering of loan underwriting standards, he said.
“There’s a lot of competition now for the same type of loan,” Zandi said. “If history is anything to go by, this is a cause for concern…as it likely points to weakened underwriting and ultimately more serious credit problems in the future.”
Although neither Zandi nor de Fontenay have said they see an imminent collapse of the sector, as private credit continues to grow, so will its importance to the U.S. financial system.
When banks face turmoil due to the loans they make, there is a set regulatory playbook, but future problems in the private sector may be more difficult to resolve, according to de Fontenay.
“This raises broader questions from a security and robustness perspective of the system as a whole,” de Fontenay said. “Are we going to know enough to know when there are signs of problems before they actually occur?”