Private Credit Update: Looking Beyond the Headlines
Recent market headlines have prompted renewed attention on private credit. While certain segments have experienced pressure, a review of institutional data suggests a more balanced picture.
Performance remains within historical ranges
Private credit default rates have increased modestly to approximately 3–6%, which remains consistent with long-term historical norms.
Importantly, many leading private credit managers continue to report very low levels of loans not making payments, generally in the range of 0.1% to 1.8%.
This pattern reflects a market that is normalizing after an unusually strong period rather than one experiencing broad deterioration.
Broader credit conditions remain supportive
Data from corporate credit markets also points to continued stability. Current credit spreads and borrowing conditions remain generally favorable, and expected corporate default rates are approximately 3–5%, well below levels observed during past financial crises.
Many larger companies continue to maintain solid balance sheets and access to financing, supporting overall credit quality.
Where stress is appearing
Recent market volatility has been more concentrated among smaller companies and certain industries. In addition, price movements in publicly traded private credit firms have largely reflected shifts in market sentiment rather than widespread underlying loan losses.
This distinction is important when evaluating headlines versus underlying fundamentals.
Our outlook
In our view, private credit markets remain fundamentally sound. Conditions have become more normalized, but large, diversified private credit portfolios continue to perform within expected ranges.
As always, thoughtful manager selection, diversification, and portfolio sizing remain central to how private credit is incorporated into client portfolios.
If you would like to discuss how private credit fits into your investment strategy, please reach out to the Cottonwood team.
Disclosures:
Content is for informational purposes only. Neither the information nor any opinion expressed in this video constitutes an offer by Cottonwood Wealth Strategies to buy or sell any securities or financial instruments, or to provide any investment advice or service.
Sources:
BlackRock. Putting Private Credit Concerns in Perspective.
Business Insider. BlackRock isn’t worried about rising defaults as it dives into private credit.
Alternative Credit Investor. Blackstone boss cites low private credit default rate.