Credit rating agency Fitch recently stated that while the private credit market exhibits "bubble-like" characteristics, it does not currently pose a systemic risk to the global financial system.
What exactly does Fitch mean by "bubble-like"? They point to a consistent set of symptoms: rapid growth, complex financial innovation, spread compression, and rising leverage among borrowers. The market's assets under management (AUM) have expanded at a compound annual growth rate of over 14% since 2019, reaching $1.1 trillion by the end of 2024. This rapid expansion, fueled by strong investor demand, is a key reason for the heightened scrutiny.
Despite these warning signs, the consensus view—shared by Fitch, Barclays, and Deutsche Bank—is that the risk remains contained. First, while $1.1 trillion is a large number, it's still comparable to the US high-yield bond ($1.2T) and leveraged loan ($1.4T) markets, not an order of magnitude larger. Second, much of the funding comes from locked-up capital, meaning investors can't withdraw their money on short notice. This structure prevents a sudden "bank run" style panic. Bank exposure, while notable at around $445 billion in loan commitments (about 40% of AUM), isn't large enough to threaten the core banking system on its own.
This leads to the core of the analysis: private credit is seen as a potential "amplifier," not an "epicenter." This means it's unlikely to start a financial crisis, but its vulnerabilities could make an existing crisis worse. For instance, the private credit default rate hit a record 9.2% in 2025, far higher than the 1.3% for high-yield bonds. In a stable economy with low inflation (currently around 2.4%), this is a manageable problem. The calm market, reflected in tight credit spreads, provides a buffer. But if a major economic shock occurred, these high defaults could spread stress through the system via connections to banks and other financial institutions.
The key takeaway is that the threat from private credit is conditional. As long as the broader economy remains stable and inflation is under control, the market's issues are likely to remain isolated. The real danger emerges if an external shock hits, which could turn this pocket of risk into a much larger, interconnected problem.
- Private Credit: Loans made directly to companies by investment funds and other non-bank lenders, rather than through public markets like bonds.
- Systemic Risk: The risk of a breakdown of an entire financial system, caused by the failure of an individual entity or group of entities, which can trigger a chain reaction.
- Spread Compression: A situation where the difference in yield (the "spread") between a risky asset and a safe asset narrows, suggesting investors have a high appetite for risk.