No fear of ‘cockroaches’? Private credit funds raise billions as investors look past warnings

Investor appetite for private credit remains undeterred even as warnings mount over looser loan approval and risk-assessment practices, as well as rising pockets of borrower stress.

The troubles at First Brands Group last September became a flashpoint for critics of private credit after the heavily leveraged auto-parts maker ran into distress, highlighting how aggressive debt structures had built up quietly during years of easy financing. 

The episode heightened fears that similar risks could be lurking across the market, prompting JPMorgan CEO Jamie Dimon to warn that private credit risks were “hiding in plain sight,” warning that “cockroaches” will likely emerge once economic conditions deteriorate.

Bridgewater founder Ray Dalio has also cautioned of mounting stress in venture capital and private credit markets due to higher rates squeezing leveraged private assets, as part of broader private market strain.

While private credit investors reportedly withdrew over $7 billion from the likes of Apollo, Ares and Blackstone amongst other big Wall Street names in the final months of last year, capital has continued to flow into private credit funds.

KKR just last week announced it completed a $2.5 billion fundraise for its Asia Credit Opportunities Fund II. TPG, one of the industry’s largest players, in December closed more than $6 billion for its third flagship Credit Solutions fund, far surpassing its $4.5 billion target and double the size of its predecessor. 

In November, Neuberger Berman announced the final close of its fifth flagship private debt fund at $7.3 billion, exceeding its original target as demand from global institutional investors remained strong. 

Granite Asia in December announced the first close of its first dedicated pan-Asia private credit strategy, raising over $350 million with backing from Temasek, Khazanah Nasional and the Indonesia Investment Authority, underscoring solid investor demand in the region. A first close is when a fund accepts initial investor commitments and begins investing, even though fundraising continues.

While Dimon had raised the alarm on private credit, JPMorgan appears to have reassessed the market.

Though underwriting standards have loosened in pockets of the market, demand for private credit continues to be underpinned by structural forces, including persistent financing needs among middle-market companies, infrastructure developers and asset-backed borrowers, JPMorgan said in its Alternative Investments Outlook 2026.

According to Goldman Sachs, private credit has grown into a multi-trillion-dollar market and has become a core allocation for many institutional investors. Pension funds, insurers and endowments that once treated the asset class as a niche alternative now see it as a long-term fixture of their portfolios.

“Concerns about a potential bubble in private credit resurfaced in September 2025 when a handful of U.S. borrowers defaulted on large debts, particularly in the auto sector,” the investment bank said.

“While alarming, drawing commentary from investors and other interested parties outside the domestic U.S. market – these defaults appear to be issuer-specific rather than systemic,” JPM said, adding that demand for yield continues to outpace supply, in particular for private equity transactions. 

There is also a structural element at play, according to private credit industry experts. As traditional banks pull back from lending due to regulatory constraints, private credit funds have become the primary providers of capital to middle-market companies.

Reforms following the Global Financial Crisis in 2008 such as higher capital requirements and stricter risk-weighting rules have made it more costly for banks to hold riskier corporate loans on their books, encouraging many lenders to retreat from certain leveraged or bespoke financing areas and opening a gap that private credit firms are stepping into.

That dynamic has reinforced the perception that private credit is no longer a niche strategy but an essential component of the financial system.

Even as fundraising stays robust, signs of strain are becoming harder to ignore.

High interest rates have pushed up borrowing costs, leaving a growing share of companies struggling to cover their private credit debt payments, warned Goldman Sachs.

Around 15% of the borrowers are no longer generating enough cash to fully service interest, and many others are operating with little margin for error, data provided by the bank showed. 

While rate cuts could offer some relief, the investment bank said they would only modestly ease the pressure rather than fix underlying weaknesses. 

Morningstar has also warned about worsening credit profiles among both high- and low-quality borrowers in 2026 as higher interest rates, especially relative to the ultra-low levels between 2010 to 2021, filter through balance sheets.

The concerns about leverage and borrower stress though are not evenly distributed across markets, with industry executives pointing to stark differences between the U.S., Europe and Asia.

In Asia, private credit markets are far less saturated than in the U.S. or Europe, said Ming Eng, managing director at Granite Asia. “We don’t see the same kind of leverage or covenant erosion that people are worried about in the U.S.,” Eng said. “Asia is at a very different stage of development.”

While U.S. and European private credit markets have become crowded with intense competition driving looser structures and higher leverage, Asia’s market remains comparatively nascent, she explained. Many borrowers are founder-led companies or family-owned businesses that still rely heavily on banks or equity financing, allowing room for private credit to grow. 

“Most of what we see in Asia is still very conservative,” Eng said. “There’s less leverage, stronger covenants, and often a real operating story behind the capital, not financial engineering.”

That difference matters at a time when concerns are growing over the quality of underwriting in developed markets.