While most of us are watching the Middle East at present, it would be easy to miss what appears to be a burgeoning crisis in one of the most important and most opaque corners of global finance.
Private credit is essentially where non-banks step in to provide loans to companies that historically would have used the likes of banks or the stock market to finance their businesses. After the global financial crisis, though, many banks were either unable or unwilling to provide those loans. Into that breach, inevitably, stepped private equity.
The impact has been enormous. The size of the private credit sector has increased from about $2 trillion (€1.69 trillion) in 2020 to $3 trillion at the end of 2025, according to Morgan Stanley. It is expected to grow to as much as $5 trillion by 2029.
How the conflict in the Middle East is already affecting Irish consumers
Given that background, the tremors in the private credit market in recent weeks have been notable to say the least.
US firms First Brands and Tricolor, which both utilised private credit heavily, blew up in the United States before Christmas amid accusations of poor underwriting standards. In the United Kingdom last week, Market Finance Solutions, a non-bank mortgage lender, collapsed, leaving its lenders on the hook for billions. On Thursday, it was reported that giant asset manager BlackRock had slashed the carrying value of a $25 million private loan to zero at the end of 2025.
Just three months earlier, it had valued the loan at 100 cents on the dollar, implying that it expected this to be fully repaid.
Arguably, though, the biggest shoe to fall so far has been the move by Blue Owl – one of the biggest private credit firms – to gate one of its funds and sell down a slew of assets to raise cash.
Why should we all be concerned by these problems? After all, these aren’t banks; their cash came from sophisticated investors who knew the risks, right? Alas, not so much.
Much of the money financing private credit firms, it turns out, came from the big banks themselves. Barclays, for example, is on the hook for about £500 million it lent to Market Finance Solutions.
The worry is that if private credit really does blow up, it would remove a huge chunk of lending from the system, and also force banks to pull their horns in from other parts of the global economy. That would throttle businesses and ultimately the wider economy.
We’ve seen versions of this movie before. In the mid-2000s, the mortgage market exploded before collapsing amid issues around underwriting and poor credit. We know what happened next. This time, nobody knows how this one will end yet.