When Private Credit Makes Headlines, What Should Investors Actually Look At?

Private credit has been in the headlines lately, and much of it isn’t particularly reassuring. Investors are reading about rising redemption requests, questions surrounding valuations, weakening lending standards, refinancing pressure, and concerns about the quality of some loans. Even the Federal Reserve has identified private credit as an area receiving increased attention as the market has grown.

Those concerns shouldn’t be ignored. But they also shouldn’t automatically lead investors to conclude that every private credit investment carries the same risks. Before deciding what a troubling headline means for your own portfolio, there may be a more useful question to ask: “What kind of private credit are they actually talking about?”

That distinction matters because private credit is not a single investment strategy. The term encompasses loans to highly leveraged companies, senior-secured lending, asset-backed financing, real estate credit, and other privately negotiated loans. Two investments can both be described as private credit while relying on very different borrowers, collateral, repayment sources, and structures.

Think about it another way. If someone told you that problems were developing in the real estate market, you probably wouldn’t assume that an apartment building in San Diego, an office tower in Chicago, and a warehouse in Dallas suddenly represented the same risk. You would want to know which part of the market was experiencing problems, what was causing them, and whether those conditions applied to the property you owned.

Private credit deserves the same distinction, and recent concerns about loan quality provide a useful example. Some lenders finance companies based largely on their ability to generate sufficient future earnings to repay their debt. When those earnings fall short of expectations, repayment becomes harder, especially when loans were structured around optimistic financial projections. The problem can extend beyond repayment. When a lender also relies on the value of that operating business as a source of recovery, declining earnings may reduce its value. In those circumstances, the borrower’s ability to repay and the lender’s secondary source of recovery can weaken together. What appeared to be two sources of protection may depend on the same financial assumptions.

These underlying concerns can help explain why investors become uneasy about private credit funds. When borrowers struggle to meet their obligations, investors may question the value and recoverability of the loans held by those funds. Some may request their capital back, creating additional pressure when those loans cannot be readily sold. The Federal Reserve reported earlier this year that concerns about underlying asset quality contributed to increased redemption requests at certain private credit vehicles, prompting some managers to limit withdrawals. In these situations, redemption requests may be a consequence of concerns about the underlying loans, compounded by the fund’s liquidity structure, rather than the original problem.

The same thinking applies when comparing individual lending opportunities. Imagine one lender finances a highly leveraged company and expects repayment primarily from future operating cash flow or refinancing several years from now. Another makes a shorter-term, senior-secured loan supported by identifiable collateral and a defined repayment source. Both participate in private credit, but their paths to repayment and the risks involved differ. Neither structure is automatically good or bad. What matters is how dependable the repayment source is and what the lender could realistically recover if repayment does not occur as expected.

That brings us to one of the most useful questions an investor can ask: “How do I expect to get my money back?” Understanding the expected source of repayment is the starting point, but investors should also consider what could prevent it. What collateral supports the loan? Does repayment depend on refinancing? What happens if the original repayment plan fails? These questions help investors understand the risks before deciding whether the potential return justifies taking them.

The rapid growth of private credit makes that discipline even more important. The Federal Reserve estimates that private credit accounts for approximately $1.4 trillion of U.S. nonfinancial corporate debt, while S&P Global has identified increased use of payment-in-kind interest, weaker covenants, and refinancing pressure in parts of the market. As more capital competes for lending opportunities, investors should watch how disciplined managers remain when deciding where to deploy that capital.

There is an important difference between raising capital because you have identified attractive lending opportunities and finding lending opportunities because you have capital that needs to be put to work. A lender should be willing to wait when an opportunity does not adequately compensate for the risk, rather than allowing the need to deploy capital to determine what qualifies as an acceptable loan. That distinction goes directly to underwriting discipline.

These principles also influence how we think about private credit in our own lending. We focus on senior-secured positions where we can identify the collateral and understand the expected source of repayment before deploying capital. That does not eliminate risk, but it helps define where the risk lies, what needs to happen for repayment, and what protections may exist if the original plan doesn’t unfold as expected.

The recent private credit headlines can ultimately be useful for investors because they remind us that broad investment categories are not substitutes for understanding how an investment works. Problems affecting one type of borrower, loan, or fund structure do not automatically tell us what is happening throughout private credit.

So, the next time you read that private credit is becoming riskier, don’t ignore the warning, but don’t stop at the headline either. Ask what kind of private credit is experiencing the problem, why it is happening, and whether that same risk exists in the investment you are considering. Because in the end, perhaps the most important question isn’t simply whether private credit is risky. It is whether you understand where the risk is in the private credit investment you actually own.

Sources

Federal Reserve Board, Financial Stability Report, May 2026. Section 4, Funding Risks, including “Developments in Private Credit.”

S&P Global Market Intelligence, Private Credit's 2026 Stress Test: Risk Management LPs Can Trust. June 20, 2026.

Office of the Comptroller of the Currency, Comptroller's Handbook: Leveraged Lending. See the discussion of enterprise value and repayment sources, page 22.