Key Takeaways
- • The Alternative Credit Council, which represents private credit fund managers, says public sentiment about private credit has become "divorced from the market-wide reality," with pressures concentrated rather than indicative of broader deterioration.
- • Private credit assets under management rose 17% year-on-year to $4.1 trillion, according to the council's report authored by Jiří Król and Cindy Ma.
- • Fears that AI could disrupt software borrowers triggered an investor exodus from business development companies, and lenders are now requiring additional covenants, widening loan spreads, or refusing to extend maturities for vulnerable borrowers.
- • Around one-sixth of surveyed funds reported non-accrual rates above 5%, while the share of loans subject to significant amendments fell to 10.6% from 11.7% in 2024.
- • Man Group's Kevin Marchetti says roughly 70% of lender takeovers stem from 2021 and 2022 deals struck at unsustainable purchase multiples and low rates.
Summary
The Alternative Credit Council, a trade body representing private credit fund managers, has pushed back against growing public concern about default risk in the asset class. In a report authored by Jiří Król and Cindy Ma, the council argues that public sentiment has become "divorced from the market-wide reality." The authors pointed to 17% year-on-year growth in assets under management, which reached $4.1 trillion, as evidence of the market's maturity and resilience, noting that some credit metrics continue to improve. "Pressures remain concentrated rather than indicative of broader market deterioration," they wrote.
The industry has faced its first notable shocks as a mature asset class this year, according to Bloomberg. Concerns that artificial intelligence could disrupt software companies, among private credit's largest borrowers, prompted an exodus of investor cash from private credit vehicles known as business development companies. Those concerns have also changed lender behavior, with the report describing lenders requiring additional covenants, increasing loan spreads, or in some cases declining to extend maturities for companies viewed as more vulnerable to AI disruption.
The report acknowledges some stress. Around one-sixth of surveyed funds reported non-accrual rates above 5%, meaning lenders had stopped booking interest on loans over doubts about repayment. Ratings agencies are also flagging elevated default rates in the sector. Kevin Marchetti, chief investment officer and head of US direct lending at Man Group, said roughly 70% of lender takeovers stem from 2021 and 2022 transactions, "when purchase multiples were unsustainable and rates were low."
Offsetting these concerns, the report found that on average 10.6% of loans in respondents' portfolios had been subject to a significant amendment, such as payment holidays, maturity or covenant changes, or payment-in-kind facilities. That is down from 11.7% reported in 2024. KKR's Michael Small argued that markets may be focusing on the wrong exposures, saying "some software issuers will face stress, but professional services may be more exposed."
The industry has faced its first notable shocks as a mature asset class this year, according to Bloomberg. Concerns that artificial intelligence could disrupt software companies, among private credit's largest borrowers, prompted an exodus of investor cash from private credit vehicles known as business development companies. Those concerns have also changed lender behavior, with the report describing lenders requiring additional covenants, increasing loan spreads, or in some cases declining to extend maturities for companies viewed as more vulnerable to AI disruption.
The report acknowledges some stress. Around one-sixth of surveyed funds reported non-accrual rates above 5%, meaning lenders had stopped booking interest on loans over doubts about repayment. Ratings agencies are also flagging elevated default rates in the sector. Kevin Marchetti, chief investment officer and head of US direct lending at Man Group, said roughly 70% of lender takeovers stem from 2021 and 2022 transactions, "when purchase multiples were unsustainable and rates were low."
Offsetting these concerns, the report found that on average 10.6% of loans in respondents' portfolios had been subject to a significant amendment, such as payment holidays, maturity or covenant changes, or payment-in-kind facilities. That is down from 11.7% reported in 2024. KKR's Michael Small argued that markets may be focusing on the wrong exposures, saying "some software issuers will face stress, but professional services may be more exposed."
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