Wall Street braced for a private credit meltdown. The risk of one is rising
TL;DR
Private credit has surged in popularity since post-financial crisis regulations discouraged banks from serving riskier borrowers.
JPMorgan Chase CEO Jamie Dimon warned after a pair of private credit-backed companies declared bankruptcy that problems in credit are rarely isolated.
Companies that are most linked to the asset class, such as Blue Owl Capital, as well as alternative asset giants Blackstone and KKR, are trading well below their recent highs.
The recent collapse of several companies backed by private credit has raised concerns among Wall Street figures about the risks associated with this rapidly growing and opaque lending sector. Private credit, which is expected to grow from $3.4 trillion in 2025 to an estimated $4.9 trillion by 2029, is lightly regulated and less transparent, leading some experts to question the accuracy of loan valuations. While proponents argue that private credit has fueled economic growth and made the financial system more resilient, critics warn that the sector's rapid expansion could lead to future credit problems.
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