Month: May 2026

A vast lending market grew up outside the banking system, no daily prices, minimal oversight, and no real stress test since 2008. Right now, that test has arrived. This is the full picture.

There is a particular kind of financial story that never quite makes it to the front page, until it does. It grows quietly, in the spaces that banks vacated after 2008, in the corners that regulators cannot easily see, and in the portfolios of funds that many investors hold without fully understanding what sits inside them. For a long time, it looks elegant. It offers better yields than the alternatives. It serves a real need. And it operates, largely, without scrutiny. Private credit is exactly that kind of story.

For the better part of fifteen years, this market has expanded steadily and mostly without drama. It filled a gap that the global financial crisis created when banks pulled back from lending to mid-sized companies. It delivered returns when interest rates were near zero and investors were desperately searching for income. It gave companies access to capital that the banking system no longer wanted to provide. And it did all of this without a single serious stress test. Not during COVID, when government stimulus programmes flooded struggling companies with cash and masked the underlying credit quality. Not during the rate hike cycle of 2022 and 2023, when rising rates actually boosted lenders’ income because most private credit loans carry floating interest rates. Every wobble was absorbed. Every crack was papered over. The market kept growing, from $46 billion at the turn of the millennium to something approaching $3 trillion today.

That era of quiet expansion is over. In 2025 and into 2026, several distinct forces have converged at once, evidence of fraud in opaque loan books, AI disruption threatening the business models of the market’s largest borrower group, a maturity wall of refinancing pressure, and a global repricing of credit risk. The result is the first genuine stress test this market has ever faced, playing out in real time.

To understand private credit, you need to begin with 2008, not because it is where the story ends, but because it is where the gap opened. When the global financial crisis hit, regulators around the world responded by forcing banks to hold more capital against their loan books, tighten their lending standards, and reduce exposure to riskier borrowers. The reasoning was sound. Reckless lending had caused the crisis, and more caution was the prescription. What regulators could not fully anticipate was the size of the market vacuum this would leave behind.

Banks had historically been the primary lender to mid-sized companies, businesses with revenues between $50 million and $500 million that were too large for small business programmes but too small to access public bond markets, where the minimum viable deal size typically runs into hundreds of millions of dollars. Post-2008, banks pulled back sharply from exactly this segment. The need for capital did not go away. The companies did not disappear. They simply had no one to lend to them.

Into that vacuum stepped asset managers. Firms like Apollo Global Management, KKR, Blackstone, and Ares Management began offering to lend directly to these companies, bypassing banks entirely. The structure was straightforward: a private credit fund would raise money from institutional investors, pension funds, insurance companies, endowments, and increasingly, high-net-worth individuals, and deploy it as direct loans to mid-market businesses. No syndication. No public listing. No secondary market trading. No daily price discovery. And crucially, interest rates that typically ran between 9% and 14% per annum, significantly higher than anything available in public bond markets during an era of near-zero interest rates. For yield-starved investors, it was enormously attractive.

The market grew steadily through the 2010s as low rates drove demand for income, and then dramatically in the early 2020s as private equity firms used private credit to finance a wave of acquisitions, particularly in software, where the thesis of recurring subscription revenue made companies look like ideal borrowers. By 2024, private credit had reached nearly $2 trillion in assets under management. Including committed but undeployed capital sitting in funds that had raised money but not yet lent it, estimates put the total closer to $3 trillion today.

What is remarkable is not just the scale but the speed of the final leg. The steepest part of the growth curve happened in the five years between 2019 and 2024. Private credit now sits alongside syndicated loans and high-yield bonds as one of the three primary forms of corporate lending in the United States. It is no longer a niche alternative to the banking system. It is a structural part of how companies borrow money, and one that has grown fast enough, and quietly enough, that its risks are only now becoming fully visible.

When a company borrows from a bank, that loan sits on the bank’s balance sheet. Regulators can see it. Analysts can price it. The market can assess it every day. When a company borrows from a private credit fund, almost none of that visibility exists.

There is no daily pricing. No public filing with real-time data. No regulatory window into loan quality. Non-banks now account for nearly 50% of all newly created corporate loans in the US, but almost none of it is transparent to the outside world.

“Banks have become a key source of liquidity for private credit lenders, and those links indirectly expose banks to the traditionally higher risks of private credit loans.”
-Federal Reserve Bank of Boston, May 2025

There is another feature worth understanding: covenant-lite loans. Traditional loans come with financial conditions, covenants, that let lenders step in if a borrower starts to look shaky. Covenant-lite loans strip most of those protections away. They now dominate new private lending. If a borrower begins to wobble, the lender often has limited legal ability to intervene early. The market has never been truly stress-tested since 2008, even during COVID, government stimulus masked the underlying credit risk.

September 2025 was the moment private credit stopped looking invincible. Two little-known US companies, Tricolor Holdings and First Brands Group, collapsed within weeks of each other, both amid allegations of fraud and unreported off-balance-sheet liabilities. First Brands filed for bankruptcy; its loans traded at 11 cents on the dollar. Jefferies and UBS had significant exposure. JPMorgan’s Jamie Dimon publicly called it “cockroaches”, where there is one visible problem, there are likely more hidden in the dark.

Here are the five structural fault lines now visible at once:

4. AI is breaking the SaaS lending thesis

If September 2025 was the first warning shot, early 2026 has been the barrage, and it has come from a direction almost nobody in private credit anticipated.

Private credit funds spent the last decade lending aggressively to software companies. The thesis was airtight: SaaS businesses had recurring subscription revenue, loyal customers, high margins, and predictable cash flows. They were considered some of the safest borrowers in the entire asset class. By end-2025, outstanding loans to SaaS firms had grown from $8 billion in 2015 to over $500 billion, nearly 19% of all direct private lending globally.

Then AI happened. Not as an abstract future risk. As a present, immediate threat to the revenue models of hundreds of companies carrying hundreds of billions in private credit debt. The S&P North American Software Index fell 15% in January 2026 alone, its worst monthly decline since October 2008. Shares of Ares Management fell over 12% in a single week. Blue Owl lost 8%. KKR dropped nearly 10%. These are not software companies. They are the companies that lent money to software companies.

The smarter money has already been moving quietly. Apollo cut its software exposure nearly in half during 2025. When one of the most sophisticated credit firms in the world de-risks a sector at that speed, it is worth paying close attention. And there is a time pressure element: approximately $12.7 billion in BDC debt matures in 2026, a 73% increase over 2025, meaning these funds must refinance their own obligations precisely when their underlying loans are losing value.

This may feel like a story happening on Wall Street. It doesn’t stay there. Indian family offices and HNI portfolios have, over the last five years, meaningfully increased their allocations to global alternative funds. Many of those funds,whether PE, BDCs, or evergreen credit structures, carry substantial private credit exposure, often more than is immediately visible in the fund documents.

A stress event in US private credit transmits through PE fund valuations, through global risk appetite, through the foreign institutional flows that move in and out of Indian equities, and through the capital that funds Indian startups backed by the same PE firms under pressure. India is not insulated.

These aren’t panic questions. They are the questions good wealth management asks before a crisis, not during one. That is the whole point of staying informed.

These aren’t panic questions. They are the questions good wealth management asks before a crisis, not during one. That is the whole point of staying informed.

What This Means for You

At Mintwit, we are not here to alarm you. We are here so you are never the last person in the room to understand what is happening to your wealth. The private credit market is better capitalised than it was in 2008. Most of its capital sits in institutional structures with long time horizons. A wholesale collapse is not the base case.

But the stress test is real, live, and happening right now. Redemptions are being gated. Valuations are being marked down. The AI disruption of SaaS borrowers has added a dimension to this market that wasn’t visible even six months ago, and it is moving fast.

We will continue tracking this closely. If you would like a personalised review of your global alternatives exposure in the context of these developments, including a look at your specific fund holdings and their private credit footprint, reach out to your Mintwit advisor directly. That conversation is worth having now.

Disclaimer:
This content is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Please consult qualified professionals before making any financial decisions. MintWit Financial Services LLP is an AMFI-registered Mutual Fund Distributor (ARN-283168); registration does not assure returns.