Trending Conversations: Private credit: Spreading fact from fiction
Key takeaways
We believe private credit (and private markets broadly) is functioning as intended
Headlines surrounding private credit have raised concerns amongst investors. While capital has grown in private markets, semi-liquid vehicles are only 14% of all assets under management*, with the vast majority being time-tested drawdown funds.
We believe private market education is critical – know what you own
Fundamentals within private credit are generally healthy and the vehicles are operating as expected.
There are underlying risks and liquidity constraints when it comes to investing in private markets.
Implementation and manager selection are key for private markets
Private credit has delivered on average relative to public markets. Within private markets, there is dispersion within strategies – showcasing the importance of manager selection.
We believe private credit is functioning as intended. While capital has grown in private markets, semi-liquid vehicles are only 14% of all AUM.
What is actually going on in private credit?
- Recent headlines, such as the defaults of First Brands and Tricolor, or the recent pressure on listed business development companies (BDC’s) and private asset manager stock prices, have made this fear evident. We have also seen significant pushback from proponents of private credit. Any signs of potential stress are viewed as a chance to reignite the debate.
- We believe there is a middle ground here. Credit risks exist in both public and private markets. While we don’t believe what is occurring in private credit is a systematic risk, there will always be challenges in parts of private markets. Investors must remain diligent when it comes to strategy, vehicle, and manager selection.
How big are private markets and has too much capital entered too fast?
“Evergreen” is a small portion of private markets, with around 2.5% in wealth funds
- Private capital has raised trillions of dollars over the past decade, the major asset classes being; private equity ($6.0T), venture capital ($3.4T), private credit ($3.3T), real estate ($2.2T), and infrastructure ($1.9T)*.
- Evergreen funds, which are a newer type of vehicle with more liquidity than drawdown funds, are only around 14% of total private markets AUM. Most of these funds to-date are institutional ($2.3T), but wealth-focused evergreen funds are expected to continue to grow their share over time, from$500B in 2025 to $1.1T in 2029.
Source: Morningstar Pitchbook, as of Feb. 22, 2026. *Co-investments ($0.4T), secondaries ($0.6T) and fund of funds ($1.0T), round out the AUM total of $18.7T. Evergreen funds, as defined by Morningstar Pitchbook, are semi-liquid fund vehicles that invest in private assets and securities, both institutional ($2.3T) and wealth-focused ($500B). These funds raise capital continuously and invest it over an indefinite period while providing some liquidity periodically. Unlike traditional “drawdown” private asset funds that have a fixed lifespan and deploy capital from commitments over time, evergreen funds operate on a perpetual basis, allowing them to accept new investments and make distributions to investors without a predetermined end date. There is no guarantee the forecasts provided will come to pass.
Investment risks
Many products and services offered in technology related industries are subject to rapid obsolescence, which may lower the value of the issuers in this sector.
Direct lending involves providing loans to private companies, often without the same level of transparency or regulatory oversight as public markets. Borrowers may experience financial distress or default on their obligations, leading to potential loss of principal and interest for investors. Additionally, these loans are typically illiquid, making it difficult to exit positions quickly, especially during adverse market conditions.
Investments in private credit and private debt—including leveraged loans, middle market loans, mezzanine debt, and second liens—are speculative and involve significant risks. These securities are generally illiquid, lack a secondary market, and may need to be held to maturity, which can result in liquidity constraints and difficulty exiting positions. Borrowers often have high leverage, increasing default risk, particularly in adverse economic or interest rate environments. Competitive pressures and excess capital may lead to weaker underwriting standards, raising credit risk and reducing potential recoveries. Private market investments also carry risks related to limited transparency, higher fees and expenses, longer investment horizons, and regulatory considerations. Additionally, these securities may be sold or redeemed at values different from the original investment amount and are considered to have speculative characteristics similar to high-yield securities. Issuers are more vulnerable to changes in economic conditions than higher-grade issuers, and investors may face liquidity strain from capital calls during periods of market stress. These factors can materially impact investment performance and principal value.
Broadly syndicated loans involve significant risks. These loans are typically made to highly leveraged corporate borrowers, increasing the likelihood of financial distress or default, which may result in loss of principal and interest. The secondary market for these loans can be illiquid, particularly during periods of volatility, limiting the ability to sell positions at favorable prices. Although most loans bear floating interest rates, changes in benchmark rates can affect returns. Additionally, covenant-lite structures or reduced lender protections may further increase risk if borrower credit quality deteriorates.
