Alright, let’s dive into something that’s been making big headlines lately: private credit. Think of it as loans handed out by folks who aren’t your typical bank—private equity firms, hedge funds, or specialized finance companies stepping in to lend to businesses, real estate projects, or individuals who might not qualify for a bank loan. Sounds useful, doesn’t it? But here’s the thing—it’s starting to spook some people, and for good reason. This market has exploded into a trillion-dollar juggernaut. It’s expected to continue growing, but it just came to an abrupt halt this week. Private credit is a less regulated, more flexible corner of lending—but it became more like the Wild West.
Freedom comes with big risks. If borrowers can’t pay up or the economy hits a snag, it could ripple through not just these lenders but the whole financial system. In this article, we’ll unpack what’s been happening lately in private credit, why it’s got experts worried, and which financial heavyweights—both the private credit firms dishing out loans and the banks tied to them—are most on the hook. We’ll also zoom in on the subprime lending space, like buy now pay later and auto loans, where things are looking particularly shaky.
As of late 2025, private credit kept booming, with global assets under management hitting around $4.1 trillion—an 18% jump from last year, according to industry surveys. Lenders were feeling optimistic, with over 90% expecting a busier year ahead for deals, fueled by falling interest rates that make borrowing cheaper and private equity firms eager to cash out. How did private credit become so big? In a nutshell, banks have gotten stricter about riskier loans due to regulation post-GFC, leaving private credit firms to step into the gap. But it’s not all smooth sailing. Some high-profile flops are sounding alarms. For instance, First Brands, a U.S. car parts supplier, went bust amid suspected fraud, leaving Jefferies holding a $715 million bag after advising and lending against its invoices, as I discussed in “WHY A JEFFERIES BAILOUT IS ONLY A MATTER OF TIME.” Then there’s Tricolor, a subprime auto lender that filed for bankruptcy with fraud allegations, sticking JP Morgan with a $170 million loss.
These cases highlight sloppy lending standards in this less-regulated space. Defaults are running at 7.8% as of early 2025, per ratings agency Fitch. About 40% of borrowers are cash-flow negative, and their ability to cover interest payments has halved over the past three years. The head of the IMF, Kristalina Georgieva, has said private credit’s risks “keep her up at night,” pointing to how lending is shifting from tightly regulated banks to these shadow players, potentially brewing trouble if the economy softens. The IMF also warns that banks’ growing ties to private credit could erode their capital if collateral values drop or downgrades hit. Add in pressures like tariffs squeezing margins, layoffs cutting consumption, and volatile business development companies (BDCs) facing payout cuts, and the market’s showing cracks—idiosyncratic issues turning into bigger headaches.
Investors and risk managers are keeping a close eye on non-accrual loans and payment-in-kind deals, as fraud-driven busts and rising delinquencies suggest a bubble that might be starting to wobble. Which institutions are most exposed? We’re talking about two main groups: the private credit asset managers who originate these loans and the banks lending to those managers for leverage. Exposure comes in absolute terms and relative terms, meaning how much of their business or balance sheet is tied up in this risky space. Private credit firms are naturally all-in, while banks are exposed indirectly through loans to these funds, creating a web of connections that could amplify trouble. The biggest names in private credit are managing massive sums, and their business is often entirely wrapped up in this market, making them highly exposed relative to their operations. Apollo Global Management leads the pack, overseeing a staggering $480 billion in private credit assets, with strategies spanning direct lending and more. Ares Management isn’t far behind, having raised $116 billion over five years, focusing heavily on private debt and topping industry rankings. Golub Capital manages about $75 billion, with a strong emphasis on middle-market direct lending. Heavyweights like Blackstone and KKR are also major players, though exact figures for their private credit arms are less clear. Since 80-100% of these firms’ portfolios are tied to private credit, a wave of defaults could hit them hard. The top 20 managers control over a third of the industry’s uncommitted capital, concentrating both power and risk.
U.S. banks are fueling private credit by lending to these managers, often through revolving credit lines or term loans. As of June 2025, they’ve committed nearly $300 billion to private credit providers, part of a broader $1.2 trillion lent to non-bank financials.
Recent Federal Reserve data breaks it down to $79 billion in revolving lines and $16 billion in term loans to private credit vehicles, but when you include private equity, the total hits $322 billion. This accounts for about 7% of their total capital on average, but it could hurt if funds draw heavily on those lines or collateral values crash. What’s worse is that the Fed is even aware of the problems lurking in this part of the financial system, but as I explained in “2025 FED STRESS TEST REVEALS HOW TODAY’S FED IS COMPLICIT IN HIDING BANKS’ PROBLEMS,” the central bank instead contributed to hiding them. Wells Fargo is out front with about $60 billion in exposure, significant in absolute terms but only around 3% of its massive $1.9 trillion balance sheet. JP Morgan’s exposure is less clear but notable, especially after taking a $170 million hit from the Tricolor collapse, with CEO Jamie Dimon warning about hidden “cockroaches” in the sector. Citigroup and Bank of America are also key arrangers, though specific figures are harder to pin down. Smaller regional banks face higher relative risks due to less oversight and less strict credit scrutiny. High leverage in these funds could spell trouble if asset values slide or liquidity dries up, hitting banks through bad loans or forced asset sales. Data gaps make it tricky to map exact exposures, but regulators are keeping a close watch, with some, like the BOE, already sounding the alarm.
Let’s focus on the subprime corner of private credit, especially buy now pay later (BNPL) and auto loans, often bundled into asset-backed securities (ABS) or collateralized loan obligations (CLOs). I warned about BNPL a long time ago in “THE SILENT – BUY NOW PAY LATER – CANCER SPREADING IN THE GLOBAL FINANCIAL SYSTEM,” explaining how this business is creating “phantom debt” that often doesn’t show up on credit reports, hiding true borrowing levels. With 45% of users hitting issues like billing errors and delinquencies set to rise with inflation or tariffs in 2025, rising defaults are a growing concern. These loans get packaged into ABS, offering attractive yields but raising worries about lax underwriting. Auto loans are in rougher shape, with subprime delinquencies at 15-year highs, repossessions surging, and bankruptcies climbing among low-income households as student loan payments resume and credit scores plummet—two million borrowers have dropped credit tiers, driving up rates sharply. Much of this debt is bundled into ABS, where reckless lending driven by investor demand could lead to major losses if defaults keep rising, fueling fears of a “subprime” bubble with major originators now under the magnifier, as I warned in “CARVANA – A TICKING TIME BOMB?“. What’s worse is that this market is incredibly obscure, allowing investors to mark the value of assets at much higher levels than where they should be.
Private credit is a powerhouse, offering big rewards but carrying serious risks. With defaults creeping up, fraud cases making headlines, and regulators like the IMF raising concerns, the market’s on a tightrope. Firms like Apollo, Ares, and Golub are deeply invested, while banks like Wells Fargo, JP Morgan, and European players are tied in through hundreds of billions in loans. The subprime space, particularly BNPL and auto loans, is a potential powder keg with shaky underwriting and rising delinquencies. The system’s holding steady for now, but for how long? Especially when many people can smell the smoke, but cannot spot the fire yet.
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