Private credit warnings dismissed as industry continues to raise billions

Investor appetite for private credit remains undeterred even as warnings mount over looser loan approval and risk-assessment practices, as well as rising pockets of borrower stress.

The troubles at First Brands Group last September became a flashpoint for critics of private credit after the heavily leveraged auto-parts maker ran into distress, highlighting how aggressive debt structures had built up quietly during years of easy financing. 

The episode heightened fears that similar risks could be lurking across the market, prompting JPMorgan CEO Jamie Dimon to warn that private credit risks were “hiding in plain sight,” warning that “cockroaches” will likely emerge once economic conditions deteriorate.

Bridgewater founder Ray Dalio has also cautioned of mounting stress in venture capital and private credit markets due to higher rates squeezing leveraged private assets, as part of broader private market strain.

While private credit investors reportedly withdrew over $7 billion from the likes of Apollo, Ares and Blackstone amongst other big Wall Street names in the final months of last year, capital has continued to flow into private credit funds.

KKR just last week announced it completed a $2.5 billion fundraise for its Asia Credit Opportunities Fund II. TPG, one of the industry’s largest players, in December closed more than $6 billion for its third flagship Credit Solutions fund, far surpassing its $4.5 billion target and double the size of its predecessor. 

In November, Neuberger Berman announced the final close of its fifth flagship private debt fund at $7.3 billion, exceeding its original target as demand from global institutional investors remained strong. 

Granite Asia in December announced the first close of its first dedicated pan-Asia private credit strategy, raising over $350 million with backing from Temasek, Khazanah Nasional and the Indonesia Investment Authority, underscoring solid investor demand in the region. A first close is when a fund accepts initial investor commitments and begins investing, even though fundraising continues.