Those of us who have been more distracted of late by conflict in Iran and political instability in the UK could be forgiven for missing news that appeared earlier in 2026 around concerns about private credit. But is this a mistake? In this article we explain what private credit is and what these concerns have been.
Private credit means lending that is not done by banks, or through the issuance of publicly traded bonds. It can also be known as ‘shadow banking’ because it is doing some of things banks do (lending money), without being a bank. Private credit can take a number of forms, but would typically be where a fund pools those wishing to invest their money and matches this with those wishing to get a loan. Private credit is not typically lent to individuals or small businesses, but is usually concentrated on lending to larger institutions. It is completely legal and will usually be regulated in some way: for example investment funds have their own regulatory requirements.
Private credit has been around for a while (arguably as long as the concept of lending and borrowing has existed), but has increased significantly in recent years. This is primarily a reaction to the tighter regulation of banks that followed the global financial crisis in 2008. In the aftermath of this crisis, banks had to follow much stricter rules that made bank credit more restrictive and expensive. Private credit did not have to follow the same rules, so stepped up into its place. Ultra-low interest rates seen between 2008 and 2022 also encouraged the growth of private credit by making borrowing cheaper overall.
There’s nothing inherently bad about private credit. However as explained above it is not regulated in the same way as banks, which is widely interpreted as ‘not regulated as much’ as banks. The loans will often be much less of a generic product than a bank loan and are not typically traded frequently: this makes accurately judging their current market price more difficult. Private credit lending is regarded as more opaque to outsiders than lending via public bonds, and there are not typically the same disclosure requirements for private credit lenders as for large publicly listed banks.
The bankruptcy of two US companies in the automobile sector ‘First Brands’ and ‘Tricolor’ in September 2025 was the catalyst for the recent concerns about the sector. Both companies had borrowed extensively through private credit means and there was concern that the wider private credit market was exposed to similarly poor credit risks. A private credit fund ‘Blackrock TCP Capital’ also experienced a sharp decline in its value in January 2026 which prompted concerns about the ability to properly value the loans. There are market worries that private credit has lent substantially to software companies whose business model is being disrupted by artificial intelligence, and that this might lead to further losses. Finally, the increased interest rates seen since 2022 make loan defaults across the market more likely and if private credit is lending to riskier borrowers, these defaults may be more prominent in the private credit market.
It is often said that the solution to the last financial crisis sews the seeds of the next financial crisis. Should we be worried that tighter regulation of banks has led to some kind of private credit time bomb that will wreak similar future hazards? Whilst there is certainly now more scrutiny of the sector, most commentators are not especially worried that the private credit market will provoke wider market turbulence, which is perhaps also why the news around private credit has got quieter of late. Whilst it has grown a lot, private sector credit remains quite a small part of the overall lending provided in the economy. It is more concentrated in larger institutional borrowers and investors, so problems in the sector if they occur are less likely to impact everyday people directly. Banks do have some indirect exposure to private credit, for example, they may invest in private credit fund, but this will form only a small portion of their risk exposure. So, the risk of contagion and the implosion of many systemic important institutions due to private credit is felt to be small. Although I’m sure we felt the same about Collateralised Debt Obligations (CDOs) ahead of the Financial Crisis...
If you have any concerns about the risks that private credit may pose to your investment portfolio please contact the Arlingclose Team at info@arlingclose.com or on 08448 808 200.
27/05/2026
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