26 May 2026
The rapid growth of the private credit market has reshaped global corporate finance over the past decade, but there are signs that investors may be cooling on this $2 trillion asset class.
Private credit took off in response to bank retrenchment in the wake of the global financial crisis, and has grown tenfold since 2009.[1] Private credit or non-bank lending, where capital is provided by private investors rather than traditional financial institutions, has evolved into a diverse spectrum of strategies, from direct lending to equity-linked financing, a form of asset-backed finance.[2]
But beneath that growth, pressure is building.
UK lender HSBC recently reported that it had to write off a $400 million loan it made to a private credit fund that had overextended itself by lending to a fraud-linked UK mortgage provider.[3] This followed a similar wave of bankruptcies linked to private credit funds last year.
Leading private credit firms have been halting or capping redemptions, making investors nervous.[4] Given the opaque nature of the market, it may be tough to gauge the proportion of portfolios exposed to at-risk borrowers.
Even the widely cited default rate of below 2% masks a far less comfortable reality: with selective defaults and liability management exercises included, the true default rate is said to have been 5%.[5]
The Middle East conflict has compounded this pressure, pushing Brent crude futures to $118 per barrel at one point and creating inflation persistence that has flipped rate expectations from cuts to potential hikes. Such moves would lead to a rerating of private credit portfolios, which would in turn mean higher rates for future borrowers.
Adding to this is the upcoming arrival of inflation hawk Kevin Warsh as Federal Reserve chair. His April confirmation hearing suggested a "regime change" at the Fed: a new inflation framework, a sharply reduced balance sheet, and a far less communicative central bank.[6],[7],[8]
Long-term bond markets in the US are now forecasting higher rates in the coming years, suggesting a ‘higher for longer’ lending environment.[9],[10]
For major shareholders and executives navigating this environment, equity-linked financing may offer a more direct and reliable path of alternative capital worth considering.
Private credit diversification mandates may benefit equity financing
Even before the spate of challenges that led to the halting of redemptions, private credit funds were already facing heightened scrutiny due to their opaque structures, growing links to banks, and the riskier bets they took by lending to sub-investment grade borrowers. In particular, the sector appears to have a high degree of exposure to a software sector that is being rapidly disintermediated by AI platforms.
Outstanding loans to software-as-a-service (SaaS) firms grew from roughly $8 billion in 2015 to over $500 billion — representing 19% of total direct loans by end-2025 — with a third of all private credit funds now carrying SaaS exposure.[11] Fund managers are being asked to be more disciplined as they might have to brace for a higher wave of defaults in their portfolios.[12]
Asset-backed finance, however, could emerge as a bright spot. Lenders are pivoting to loans secured against hard or soft assets — equity positions, equipment leases, real estate, machinery, GPUs — or specific receivables such as mortgages, auto loans, and IP.[13] Asset-based finance is expected to challenge, or even overtake, direct lending over the long term as banks continue to de-risk their balance sheets.[14]
This may suit equity owners, particularly in firms across industrial sectors, given how the billions in dry powder held by private credit funds still needs to be disbursed. Mezzanine or equity-linked loans are expected to become more popular as a way for companies and individuals to fill funding gaps.
For example, when Elon Musk acquired Twitter in 2022, a significant portion of his financing was structured as a $12.5 billion margin loan collateralized by his Tesla shares.[15] Twitter was subsequently merged into xAI, his AI venture, which then combined with SpaceX in an all-stock deal valuing xAI alone at $250 billion.[16] Borrowing against existing equity essentially allowed Musk to retain ownership and control, through which he compounded value across multiple ventures.
A more difficult environment ahead
Borrowers looking to tap private markets, however, should note that they could face further pressure this year when Warsh takes over as Fed chair.
US inflation may hit 4% year-on-year by May.[17] Faced with persistent inflation due to increasing gasoline prices, it may be difficult for a Warsh-led Fed to lower rates. Further, oil shocks have historically led to recessionary pressures, which in turn can lead to higher default rates and force lenders to respond by pushing up borrowing costs.
For business owners with ambitious growth plans, higher loan servicing costs or constrained credit access could crimp near-term execution. At a time of rapid change driven by geopolitics, technological disruption, rising input costs, and intensifying global competition, having a diverse array of financing sources matters more than ever.
Even at a time of stress, the private credit universe remains one of the primary funding avenues through which ambitious executives can fund what they intend to build. Equity owners who move early to structure financing around their assets and shareholdings may be able to access credit on favorable terms that can help to preserve ownership and support growth.
[1] https://www.aima.org/article/the-private-credit-era.html
[2] https://www.kkr.com/alternatives-unlocked/private-credit
[3] https://www.ft.com/content/8117fa35-d89e-4fb9-a94b-48257bd6229b
[4] https://www.businessinsider.com/blackstone-private-credit-warning-signs-financial-crisis-risks-2026-3#ares-caps-private-credit-withdrawals-at-5-4
[5] https://www.robeco.com/en-int/insights/2026/04/private-credit-the-good-the-bad-and-the-illiquid
[6] https://fortune.com/2026/04/22/kevin-warsh-forward-guidance-dot-plot-wall-street-guidance/
[7] https://www.cnbc.com/2026/04/21/kevin-warsh-fed-confirmation-hearing-trump-live-updates.html
[8] https://www.axios.com/2026/04/22/kevin-warsh-fed-communications-policy
[9] https://www.carsongroup.com/insights/blog/kevin-warsh-as-the-next-fed-chair/
[10] https://www.reuters.com/markets/us/us-long-bonds-over-5-buy-or-beware-2026-05-06/
[11] https://www.bis.org/publ/qtrpdf/r_qt2603v.htm
[12] https://www.primebuchholz.com/2026/02/24/software-stress-ai-risk-in-private-credit/
[13] https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/ideas-and-insights/the-good-news-behind-the-bad-private-credit-headlines
[14] https://www.withintelligence.com/insights/private-credit-outlook-2026/
[15] https://corporatefinanceinstitute.com/resources/equities/elon-twitter-buyout/
[16] https://www.cnbc.com/2026/02/03/musk-xai-spacex-biggest-merger-ever.html
[17] https://www.reuters.com/commentary/reuters-open-interest/forget-3-us-inflation-its-heading-4-2026-05-04/
disclaimer
Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.
This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst. EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete. Opinions and information herein are subject to change without notice. The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by Equities First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.
This Document contains the intellectual property of EquitiesFirst in the United States and other countries, including, without limitation, their respective logos and other registered and unregistered trademarks and service marks. EquitiesFirst reserves all rights in and to their intellectual property contained in this Document. The Document should not be distributed, published, reproduced or otherwise made available in whole or in part by recipients to any other person and, in particular, should not be distributed to persons in any country where such distribution may lead to a breach of any legal or regulatory requirement.
EquitiesFirst make no representation or warranty with respect to this Document and expressly disclaim any implied warranty under law. You acknowledge that EquitiesFirst is not liable under any circumstances for any direct, indirect, special, consequential, incidental, or punitive damages whatsoever, including, without limitation, any lost profits or lost opportunity, even if EquitiesFirst has been advised of the possibility of such damages.
EquitiesFirst makes the following further statements that may be applicable in the stated jurisdiction:
Australia: Equities First Holdings (Australia) Pty Ltd (ACN: 142 644 399) holds an Australian Financial Services Licence (AFSL Number: 387079). All rights reserved.
The information contained on this Document is intended for persons located in Australia only and classified as a Wholesale Client only as defined in Section 761G of the Corporations Act 2001. The distribution of information to persons outside this criteria may be restricted by law and persons who come into possession of it should seek advice and observe any such restriction.
The material contained in this Document is for information purposes only and should not be construed as an offer or solicitation or recommendation to buy or sell financial products.
The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.
Forecasts are not guaranteed, and undue reliance should not be placed on them. This information is based on views held by Equities First Holdings (Australia) Pty Ltd as at the publishing date of this material.
Dubai: Equities First Holdings Hong Kong Ltd (DIFC Representative Office) at Gate Precinct Building 4, 6th Floor, Office 7, Dubai International Financial Centre (commercial license number CL7354) is regulated by the Dubai Financial Services Authority (“DFSA”) as a Representative Office (DFSA Firm Reference No.: F008752). All rights reserved.
The material contained in this document is for information purposes only and should not be construed as financial advice, including an offer or solicitation or recommendation to buy or sell financial products. The information contained in this document is intended to be general in nature and any advice contained in this document is general advice only and has been prepared without considering your objectives, financial situation, suitability of the financial products or your needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. If you do not understand the contents of this document, you should consult an authorised financial adviser.
This document relates to a financial product which is not subject to any form of regulation or approval by the DFSA. The DFSA has no responsibility for reviewing or verifying any documents in connection with this financial product. Accordingly, the DFSA has not approved this document or any other associated documents nor taken any steps to verify the information set out in this document, and has no responsibility for it.
Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1493/2025) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407). This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.
Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions. It is not intended for, and should not be used by, persons who do not meet those criteria.
United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”). In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.
