For a decade, private credit sold itself to chief executives on a simple promise: capital without the theatre. No earnings call to survive, no rating agency picking apart your covenants, no syndicate of twenty banks arguing over an amendment. Just a single fund, a negotiated term sheet, and a cheque that clears faster than anything a bank committee could approve. It became, for a huge swathe of the mid-market economy, the default way to finance growth, refinance expensive bank debt, or fund an acquisition without going anywhere near the public markets.
That pitch has been remarkably successful. The asset class has roughly tripled since 2020, from about $2 trillion to something in the region of $3 trillion globally today, and Morgan Stanley now expects it to approach $5 trillion by 2029. In India, private credit investment ran to roughly $3.5 billion across 102 deals in the first half of 2026 alone, with mid-sized transactions between $10 million and $60 million accounting for the bulk of activity. What used to be a niche instrument for distressed situations is now a mainstream line on the capital structure of ordinary companies, from Mumbai real estate developers to American software firms to auto-parts manufacturers in Ohio.
The events of the past year suggest CEOs who took that capital should look again at what they actually bought.
What the quiet was hiding
The case that crystallised the problem was First Brands Group, the US auto-parts supplier that collapsed into Chapter 11 in October 2025. The company had built an intricate web of supply-chain and receivables financing, off to the side of its conventional loans, that involved roughly $2.3 billion in factored receivables lenders and investors say they cannot fully account for. Jefferies, whose asset-management arm had steered client capital into First Brands-linked funds, spent months managing the fallout and facing investor litigation. What made the episode so unsettling wasn’t the size of the loss on its own. It was the demonstration that leverage can sit inside a private credit borrower’s balance sheet, effectively invisible, until the moment it isn’t.
Then, in February 2026, Blue Owl Capital, one of the largest direct-lending managers in the world, restricted redemptions at one of its semi-liquid vehicles, a decision that rattled a market which had spent years telling investors, regulators and portfolio companies alike that this was patient, long-duration capital immune to the kind of run dynamics that sink banks. Jamie Dimon, who has been warning about the sector since at least mid-2025, sharpened the point in his most recent public remarks: private credit, he said, “does not tend to have great transparency or rigorous valuation marks,” a structural feature that makes it prone to sudden repricing precisely when confidence is already fragile. The Financial Stability Board’s own vulnerability assessment, published in May 2026, quietly confirmed the substance of his complaint: valuations in the sector are typically updated only quarterly, ratings cluster in speculative territory, borrower leverage running at five to six times EBITDA before adjustments (nearer seven times on a “true” basis), and effective default and restructuring rates, once selective defaults are included, sit close to five percent, comparable to the high-yield bond market it was supposed to be safer than.
None of this means private credit is about to collapse, and regulators, including the FSB, have generally stopped short of calling it a systemic threat. But the events of the past twelve months have done something more specific and more useful for a CEO than a crisis would: they have shown, with real cases attached, exactly where the risk in this instrument actually lives. It isn’t primarily in your income statement or your interest cover ratio. It’s in who is standing behind your lender, and what that lender’s own investors decide to do under stress.
The concentration nobody put on the risk register
Here is the assumption worth re-examining. Many boards have treated the addition of a private credit facility as a diversification move: one more source of capital, reducing dependence on any single bank. In practice, it often does the opposite. A small number of mega-funds, Blackstone, Apollo, Ares, Blue Owl and a handful of others, now sit behind an outsized share of mid-market balance sheets across unrelated sectors and geographies. Banks’ own direct lending exposure to these funds is estimated by the FSB at somewhere between $220 billion and $500 billion, and the top five banks account for the majority of financing commitments to business development companies. Layer onto that the FSB’s finding that data-centre and AI-infrastructure financing swelled to 34 percent of private credit deal activity in 2025, up from a 17 percent average, with roughly $800 billion in private credit funding earmarked for AI capital expenditure through 2028, and you have a market where a shock to sentiment around a handful of AI-adjacent credits, or a handful of large managers, can transmit through to a completely unrelated borrower who has never missed a covenant test. That borrower’s crime was simply sharing a lender, or a lender’s LP base, with someone else’s problem.
This is a genuinely new kind of correlation risk for a mid-market company, and it doesn’t show up in any conventional stress test. A bank’s stability is disclosed, regulated and benchmarked through capital ratios you can look up. A private credit fund’s stability depends on the redemption behaviour of its own investors, insurers, pension funds, increasingly retail money through semi-liquid vehicles where retail participation in BDC assets has climbed from negligible levels to roughly 13 percent, none of which is visible to the company borrowing from it.
Why India’s calm should not be mistaken for safety
India’s private credit market has, so far, sat apart from this turbulence, and there are real structural reasons for that. Domestic funds now account for about three-quarters of deal value, up sharply as global capital’s share fell from 68 percent to 26 percent year on year, insulating Indian borrowers somewhat from the redemption pressure playing out in New York and London. The 2026 amendments to the Insolvency and Bankruptcy Code, which accelerated case admission and strengthened creditor protections, have given domestic funds more confidence to lend into mid-market and stressed situations than at any point since the IBC’s creation. Bank credit growth of roughly 18 percent and NBFC credit growth of 16.6 percent suggest an economy still comfortably able to fund itself through conventional channels alongside the newer instrument.
But two features of the Indian market deserve more board-level scrutiny than they currently receive. Real estate accounts for roughly 35 percent of private credit deal value, a concentration that should sound a quiet alarm to anyone who remembers how quickly IL&FS’s 2018 default cascaded through India’s NBFC sector once a handful of large, interconnected balance sheets came under simultaneous pressure. And India’s current insulation is partly an artefact of the market being young and domestically funded rather than structurally safer; as global capital, currently retreating, eventually returns in search of yield, it will bring back with it the same correlated fund-flow risk that has just been exposed in the US and Europe.
What this changes for a CEO’s next financing decision
The practical implication isn’t to avoid private credit. For many mid-market companies it remains faster, more flexible and better suited to a specific transaction than anything a bank syndicate can offer. The implication is that CFOs and boards should stop treating “cost of capital” as the only variable worth negotiating and start asking who is behind the fund, how liquid that fund’s own capital base is, and what happens to your covenant waiver or follow-on tranche if that fund faces redemption pressure at the exact moment you need it least. Lender concentration and lender liquidity deserve a standing line on the risk register, next to interest-rate and refinancing risk, not a footnote in the treasury report. The quiet that made private credit so attractive to CEOs for the past decade was never the absence of risk. It was the absence of visibility into where the risk had gone.
