A bit too private? Private credit and investor visibility

Worries over private credit are increasingly public. Following high-profile failures, some see potential for wider problems. In July, investor Michael Burry of The Big Short fame warned of the potential for systemic risks from AI-linked credit investments held by insurers. US life insurers hold $849 billion in private credit assets, according to researchers Burry cites. 

Burry made his name predicting the subprime mortgage issues that sparked the global financial crisis in 2008, which is also the origin of the boom in private credit seen in subsequent years. Increased capital and liquidity requirements imposed on banks saw them reduce exposure to higher risk, capital-intensive lending such as parts of the SME and leveraged finance markets.  

Private credit funds, supported by investors looking for higher yields amid ultra-low interest rates, stepped in to fill the gap. Global private credit assets of about $300bn in 2008 have swelled to more than $2.5 trillion today – about £60bn of it in the UK. 

The Financial Stability Board estimates that non-bank financial institutions now account for almost half of global financial assets. 

This is not necessarily a problem. As the Alternative Investment Management Association (AIMA) told the House of Lords’ Financial Services Regulation Committee last year, the funds have a valuable role in meeting a demand from borrowers.  

“Private credit plays an important role financing SMEs and mid-market companies, as well as providing capital and liquidity to the infrastructure, real estate and defence sectors,” AIMA’s response to the committee’s call for evidence noted. The funds continue to plug a gap in funding that the banks are in no rush to refill.  

But we should not ignore the differences between bank lending and private credit, particularly in terms of the monitoring frameworks and visibility for investors and regulators.  

Without their own credit specialists, most investors in pension funds, insurers, family offices and funds of funds are reliant on the credit fund managers’ monitoring and reporting in evaluating the lending portfolio’s health. Consequently, they often have poor visibility of the individual loans:  

• Portfolio reporting is often aggregated, limiting visibility of individual asset risk 
• Credit events, such as covenant resets, amendments and waivers, may not be fully visible outside formal default, which can be avoided  
• Valuation outcomes are typically reported as conclusions, rather than supported by transparent analysis of underlying loan performance  
• Comparability across managers and strategies is limited due to non-standardised reporting frameworks 

None of this is new, but it has increased pertinence in an environment where there’s significant evidence of growing stress in credit markets. 

After expanding rapidly over years with ultra-low interest rates, the market is now experiencing a sustained period of higher rates, putting pressure on the funds’ borrowers with variable debt and refinancing needs.  

Evidence also suggests deteriorating borrower cash flow. According to the IMF Global Financial Stability report in April 2025, at the end of 2024, 40% of private credit borrowers globally had negative free operating cash flow, so were unable to cover the costs of servicing debt from operating income alone – up from 25% in 2021. Borrowers are also increasingly conserving cash by capitalising interest using PIK (payment-in-kind) financing: adding interest owed to the loan. In the direct‑lending market, PIK income averaged about 4.2% pre‑pandemic, but in the third quarter of 2025 was more than double that (8.8%). 

Most strikingly, senior loans – historically the most protected part of the capital structure – are increasingly seeing write-downs. By the start of this year, the rate of senior loan write-downs by private credit funds had tripled since 2022, according to financial services data and analytics business MSCI. 

High-profile bankruptcies, such as US auto parts supplier First Brands and car dealership Tricolor last year, have further raised fears and pushed some investors to review exposures. As JPMorgan Chase CEO Jamie Dimon put it, “When you see one cockroach, there are probably more.” 

Crucially, visibility for investors would not simply enable them to better assess what they own, how it’s performing and what it’s worth. It’s also an issue of enabling the market  to uncover more quickly the rare bad actors that help neither investors nor legitimate managers.  

Bridging lender Market Financial Solutions (MFS), which collapsed in February 2026 owing over £1.3bn, is a case in point: The firm seems to have been triple pledging – using the same assets as security with multiple lenders, which is an issue that external review could have picked up.  

It was a similar story at Carriox Capital, the receivables-financing and invoice-factoring company that collapsed in 2025, after allegedly fabricating over $552 million in fake invoices. Again, it is a fraud that could have been uncovered.  

With rising regulatory interest in the sector, increased transparency could conceivably eventually be forced on the sector. For now, however, investors and the industry itself will be hoping for a quiet summer. For private credit right now, no news is good news.