Despite default fears and “cockroach” alerts, investors still see private credit as essential
MARKET INSIDER – Private credit is once again testing investors’ nerve — and winning. Even as high-profile warnings about hidden risks, looser underwriting and borrower stress grow louder, global capital continues to flood into the once-niche asset class, underscoring how deeply private credit has embedded itself in modern finance.
The debate intensified after JPMorgan CEO Jamie Dimon warned that risks in private credit were “hiding in plain sight,” likening them to “cockroaches” that would surface when economic conditions worsen. The collapse of U.S. auto-parts maker First Brands Group last year became a case study for critics, highlighting how aggressive leverage quietly accumulated during years of cheap money. Yet rather than retreat, investors appear to be doubling down.
Fundraising momentum tells the story. KKR recently closed $2.5 billion for its Asia Credit Opportunities Fund II, while TPG raised over $6 billion for its latest flagship credit fund, far exceeding targets. Neuberger Berman and Granite Asia also reported strong demand, with backing from sovereign investors such as Temasek. The message from institutions is clear: private credit is no longer a tactical trade — it is a strategic allocation.
Wall Street’s own stance reflects this shift. While Dimon raised alarms publicly, JPMorgan’s Alternative Investments Outlook argues that demand remains underpinned by structural forces. Middle-market companies, infrastructure developers and asset-backed borrowers still need capital, even as banks retreat. According to Goldman Sachs, private credit has grown into a multi-trillion-dollar market and is now a core holding for pensions, insurers and endowments that once treated it as an exotic alternative.
That retreat by banks is critical context. Post-2008 regulatory reforms made leveraged and bespoke lending more expensive for traditional lenders, opening a gap that private credit funds have eagerly filled. The result is a parallel lending system that many investors now view as indispensable to economic growth — even if it carries risks that are harder to spot in opaque private markets.
Those risks are becoming more visible. Goldman Sachs estimates that around 15% of private-credit borrowers no longer generate enough cash to fully service interest payments, with many others operating on thin margins. Higher rates have exposed fragile balance sheets, and even anticipated rate cuts are unlikely to solve deeper structural weaknesses. Morningstar has also warned of worsening credit profiles heading into 2026.
Crucially, the strain is not uniform. While U.S. and European markets show signs of leverage creep and covenant erosion, Asia tells a different story. Granite Asia’s Ming Eng argues the region remains conservative, dominated by founder-led and family-owned businesses with lower leverage and stronger covenants. In a crowded global market, that divergence may prove decisive.
The paradox of private credit is now unmistakable: the louder the warnings, the more investors seem convinced they cannot afford to ignore it. Whether today’s confidence proves prescient or complacent may determine if Dimon’s “cockroaches” stay hidden — or become the defining financial story of the next downturn.
