There’s a silent problem that has been building for fifteen years.
It doesn’t make the front page of financial newspapers. You won’t hear about it on the evening news. And yet, this problem is most likely touching your investments, your retirement savings, and possibly your own ability to borrow — without you knowing it.
I’m talking about the private credit market.
Before you close this tab: I know, “private credit” sounds like something that has nothing to do with you. Technical. Boring. Reserved for bankers in expensive suits.
Think again.
Credit Is the Fuel That Runs Everything
Let’s start from the beginning.
When you take out a car loan to become an Uber driver, that’s credit. When a small business borrows to buy a SaaS software subscription, that’s credit. When a private equity fund acquires a restaurant chain, finances the deal, and keeps the operation running on borrowed money, that’s credit too.
Credit is the circulatory system of the modern economy. No credit, no growth. Too much bad credit, and you get 2008.
For decades, business lending ran primarily through banks. Then came the 2008 financial crisis. Regulators tightened the screws. Banks pulled back. And in the vacuum left behind, something else emerged.
The private credit market.
Non-bank funds — Blackstone, Apollo, Ares, Blue Owl, Carlyle — started lending directly to companies, outside traditional banking channels. Faster. With less transparency. And often to companies banks had refused to touch.
Here’s the thing about that Uber driver’s car loan: it gets sold and repackaged between financial institutions. Part of it ends up in a structured credit fund. That fund is financed by a publicly traded BDC (Business Development Company). And that BDC? Tens of thousands of ordinary savers are exposed to it — sometimes without knowing — through their multi-asset ETF or pension fund.
Multiply that by millions of loans. Auto loans, commercial real estate debt, financing for SaaS companies bought by private equity, credit lines for franchise restaurant chains.
It’s all connected. And it’s all exposed to the same fundamental risk.
A Market That Exploded — in a Worrying Way
In 2010, private corporate loans totaled $310 billion worldwide.
Today: $3.5 trillion. That’s eleven times larger in fifteen years.
Morgan Stanley projects $5 trillion by 2029.
For context: the global high-yield bond market — the so-called “junk bonds” — sits at roughly $1.5 trillion. Private credit has blown past it.
This is not a niche market. It has become one of the pillars of how the real economy gets financed.
And that is precisely where the problem lies.
The Problem: Borrowers Who Can No Longer Pay
Here’s what is actually happening right now.
Between 2020 and 2021, interest rates were near zero. Private credit funds lent aggressively, on terms very favorable to borrowers. Hundreds of billions of dollars were deployed into floating-rate loans indexed to SOFR — the US interbank reference rate.
Then the Fed raised rates by 500 basis points in 18 months. Something almost no one had modeled for.
The result: interest costs on those loans jumped by more than 50% in a matter of months. Companies that were comfortably servicing their debt suddenly found their financing costs exceeding their operating cash flows.
The IMF published a figure in 2024 that should stop you cold:
More than one-third of private credit market borrowers now have interest costs that exceed their current earnings.
One in three. These are companies that don’t earn enough to pay the interest on their own debt.
In a normal world, those companies would go bankrupt. But in the world of private credit, there’s a technique for that: PIK (Payment-In-Kind).
Instead of paying interest in cash, the company issues additional debt. It borrows to pay its interest. It grows its debt load to stay alive.
The share of PIK loans across BDCs has risen from 7.4% in 2021 to over 11% in 2025. Double in four years.
These are zombie companies. They’re breathing, barely. And their numbers are growing.
The Chain of Failures Has Already Started
This isn’t theoretical. The events have already been unfolding.
February 2024: Thrasio, the giant Amazon seller roll-up financed entirely by private credit, files for bankruptcy. An aggressive acquisition machine built on private debt. Liquidated.
November 2024: Tricolor, a subprime auto sales platform, faces critical funding strains. Alleged fraud tied to $945 million in asset-backed loans. JPMorgan and Fifth Third Bank are exposed.
January 2025: First Brands, an automotive parts manufacturer, files for bankruptcy. Over $5 billion in debt accumulated through 20+ acquisitions financed by private credit. Alleged double-pledging of collateral.
February 2026: Blue Owl gates withdrawals from its retail credit vehicle. An Apollo-managed BDC cuts its dividend and marks down assets.
March 2026: Blackstone’s flagship private credit fund, BCRED — $82 billion under management — faces a surge in redemptions. $3.7 billion pulled in a single quarter. Blackstone has to raise its buyback cap from 5% to 7% and inject $400 million of its own money to honor requests. Its stock falls 8% to a two-year low.
RA Stanger, an investment bank that closely tracks alternative assets, now forecasts a 40% year-over-year decline in BDC capital formation for 2026.
These are not isolated accidents. This is a cadence. A system under pressure, cracking at the seams.
Why Your Portfolio Is Probably Exposed
“But I don’t invest in private credit.”
Maybe you don’t. But your portfolio does.
Through your ETFs: The major private credit firms — Blackstone (BX), Apollo (APO), Ares (ARES), KKR — are components of many indices. If you hold an S&P 500, Nasdaq, or financials ETF, you’re exposed to their valuations.
Through BDCs: These publicly traded vehicles are accessible to anyone with a brokerage account. Some thematic ETFs are heavily concentrated in them. Their share prices have dropped 10–25% from their highs.
Through your pension fund: CalPERS, Ontario Teachers’, British and Dutch retirement funds — they’ve all made massive allocations to private credit over the last five years. Your future retirement may be more exposed than you think.
Through the companies you own: How many of your portfolio positions are businesses backed by private equity, with private debt on their balance sheets? In tech, healthcare, restaurants, logistics — entire sectors have been levered up by private credit.
The contagion risk is real. Both the IMF and the Boston Fed have documented it: private credit is increasingly interconnected with banks, insurers, and public markets. When pressure builds, correlations rise with it.
The Structural Problem: Nobody Really Knows What’s Inside
Here’s what makes private credit fundamentally different from public markets.
Private loans almost never trade. They aren’t marked to market prices in real time. Instead, they are valued quarterly, using internal models — by the fund managers themselves.
The result: data from Lincoln International shows that direct loans are still being valued at 98.7 cents on the dollar on average. As if everything is fine. That’s very hard to square with:
Financing costs that have exploded
One in three borrowers unable to cover their interest payments
High-profile bankruptcies across multiple sectors
Record redemptions at Blackstone and Blue Owl
This opacity is the real systemic risk. Not necessarily the losses themselves, but the sudden discovery of the losses — when model-based valuations finally have to meet reality.
This is exactly what happened in 2022 with non-traded real estate funds. What happened in 2008 with CDOs. Everything was valued “correctly” — until it wasn’t.
What I Think — and How I’m Positioning
I’m convinced we’re at an inflection point.
Private credit is not collapsing. This is not 2008. The best-managed funds will survive, and some will thrive in the dislocation ahead.
But there are two distinct scenarios taking shape, and depending on which one materializes, the implications for your portfolio are radically different.
And here’s where it gets genuinely interesting: there is a massive opportunity hiding inside this chaos.
When a $3.5 trillion market starts cracking at the edges, quality assets get sold at distressed prices. Positions yielding 9–13% annually become available at valuations you couldn’t have found two years ago. The same institutional panic that’s driving retail redemptions is creating the kind of entry points that only appear a few times per decade.
The question is: are you positioned to protect yourself — and to take advantage?
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In the full analysis, I walk you through:
1. My two scenarios, with specific numbers The “orderly correction” scenario vs. the “contagion” scenario — the probabilities I assign to each, the trigger levels to watch, and the implications for every asset class in your portfolio.
2. The positions I’m holding today How I’m hedging against contagion risk while simultaneously positioning to capture the opportunity if dislocation accelerates. Names, tickers, sizing, and entry levels.
3. The three indicators I watch every week Three specific metrics — freely available — that will tell you before anyone else whether private credit is shifting from “localized stress” to “systemic problem.” I show you exactly how to read them.
4. The most exposed sectors in your portfolio A sector-by-sector breakdown of private credit exposure: SaaS tech, healthcare, restaurant franchises, logistics. With specific company names to watch closely.
5. How to profit from the dislocation For investors who want to play offense: the publicly traded vehicles offering private credit exposure at distressed prices — and the exact criteria I use to separate the opportunities from the traps.
This is one of the most important pieces I’ve written this year. The window to position correctly — in either direction — is probably a few quarters. No more.