Business

Wall Street might be panicking over private credit but insiders can’t see what all the fuss is about

Published

2 months ago

October 20, 2025

On October 15, two Wall Street titans offered radically different visions of the private credit market. JPMorgan Chase CEO Jamie Dimon warned investors that recent bankruptcies in private credit could be just the beginning: “When you see one cockroach, there are probably more.” Hours later, BlackRock CEO Larry Fink struck a defiant tone on his firm’s earnings call, defending his company’s $12 billion bet on private credit through its acquisition of HPS Investment Partners: “I’ve never been more excited about the future of BlackRock.”

So who is right?

Investors have been so worried about the stability of private credit recently that their frantic selling drove up the VIX “fear” index by 35% over the last month. They are spooked by the collapse in September of Tricolor Holdings, a subprime auto lender and dealer, revealing allegations of fraud in which the company allegedly pledged the same collateral to multiple banks. Private credit was dealt another blow late last month when First Brands, an auto parts supplier, collapsed into bankruptcy owing $10 billion, triggering federal investigations into $2.3 billion in missing funds. Then on October 16, regional banks Zions Bancorporation and Western Alliance disclosed fraud-related losses, catalyzing a market rout that erased $100 billion in market cap from U.S. bank stocks and pushed market volatility to four-month highs.

Major institutions tallied their damage: JPMorgan took $170 million in Tricolor losses, UBS disclosed over $500 million in First Brands exposure, Jefferies revealed $715 million in questionable receivables. The private credit market—which has grown from $200 billion to $3 trillion globally in fifteen years—suddenly looked vulnerable.

But credit analysts and executives who spoke to Fortune have mixed views on Wall Street’s panic. Several argue that the failures aren’t private credit problems at all. According to them, these instances are traditional bank lending blow-ups, and the mislabeling reveals more about competitive tensions between old-guard banks and private credit disruptors than genuine systemic risk. The question, however, is whether these analysts are right, or whether they’re dangerously downplaying cracks in a $3 trillion market that is systemically important to global finance.

The definition problem

“First Brands, if it was rated by us, would not have been considered in any way, shape, or form a private credit transaction,” Bill Cox, chief rating officer at Kroll Bond Rating Agency, which tracks thousands of private credit loans, said. “Its main debt was full-on public, broadly syndicated loans.”

This distinction matters. The broadly syndicated loan (BSL) market—dominated by large commercial banks—operates differently from the direct lending market that defines private credit. BSL loans are originated by banks, syndicated to multiple investors, and traded in public markets with daily pricing. Private credit loans, by contrast, are bilateral transactions between a lender and borrower, held to maturity in a “buy and hold” strategy with no secondary market trading.

First Brands’ bankruptcy involved primarily BSL debt and receivables “factoring,” a form of lending where banks purchase a company’s accounts receivable at a discount in hopes of profiting later when clients pay their bills in full. Neither activity represents the core direct lending business that firms like Ares, Apollo, and Blackstone have built.

“None of them do factoring,” Cox said about the dozens of private credit platforms his firm rates. “We looked at the entire universe of our CLOs, BDCs, and other facilities for exposure to First Brands. The exposure was de minimis,” he said, referring to collateralized loan obligations (bundles of loans sold to other investors) and business development companies (which are set up as investment bets on struggling or distressed companies).

Brian Garfield, who heads U.S. portfolio valuation at investment banking firm Lincoln International which performs over 6,500 quarterly valuations of private companies, echoed this view: “First Brands [largely had BSL facilities and] that’s not the direct lending market. I think it’s important that we understand that alone in itself is really important, because there’s this whole combination of things that everyone is just putting everything in one basket,” he told Fortune.

The real state of private credit

This isn’t to say private credit faces no challenges. Lincoln International’s proprietary data tracking the direct lending market shows covenant defaults—technical breaches of loan terms rather than payment failures—have risen from 2.2% in 2024 to 3.5% currently. Payment-in-kind (PIK) usage, where struggling borrowers defer cash interest payments, increased from 6.5% of deals in Q4 2021 to 11% today, with “bad PIKs” (repriced mid-deal) rising from 33% to over 50% of that total.

“Are there cracks? Yes,” Garfield acknowledged. “But on average, are we seeing strong fundamental EBITDA growth? Yes.” His data shows last-twelve-months year-over-year EBITDA growth of 6-7%—the highest level since Q1 2021.

KBRA’s analysis of 2,400 middle-market companies representing roughly $1 trillion in debt tells a similar story. Cox’s team projects defaults could peak at 5%, which he admitted is “a lot more than this industry has seen,” but he said was “relatively” low for public market comparables, the measure through which private company valuations can be derived by comparing the businesses to other similar companies that are already publicly traded on the stock market.

Why the panic?

Given the fundamentals aren’t catastrophic, analysts point to several factors beyond credit quality to explain investor anxiety, namely less stringent guardrails and documentation processes.

“If something grows like a weed, maybe it is one,” Timur Braziler, who covers regional banks at Wells Fargo, told Fortune. “The availability of credit over the last five years, when you have more than one source competing for that same loan, maybe the underwriting isn’t as stringent.”

Andrew Milgram, managing partner and chief investment officer of Marblegate Asset Management, an alternative investment firm focused on middle market distressed and special situation investments offered a more pointed critique: the competitive dynamics of unregulated lending inevitably lead to deteriorating standards. “When loans were done by banks, they were subject to oversight,” he explained. “As those loans moved out of the banking system into an unregulated environment, they began competing for business by loosening documentation, loosening underwriting standards.”

Private credit loans are typically given out by non-bank lenders such as alternative asset managers, private equity firms, and pension funds.

Without the guardrails and protections provided by traditional banks, who are beholden to regulators and the federal government, disaster can ensue, according to Milgram who has long been skeptical of the private credit market.

“Lending has been regulated in societies for all time. In fact, the code of Hammurabi contemplated regulating lenders because every society, everywhere for all time has recognized that durable, responsible lending is central to the proper functioning of the economy,” he added.

Cox sees a different dynamic at work: competitive tensions between traditional banks and private credit upstarts have led to, in his opinion, a rise in misconstruing the overall risk of private credit and direct lending. “If your neighbor is saying it’s your dog that’s relieving itself on the lawn, and you know it’s not your dog, it’s pretty frustrating,” he says, noting that both Tricolor and First Brands were primarily bank lending failures, not private credit issues.

He admits, however, that there are corners of the private credit market that are more exposed and involved in “riskier parts of credit” where lenders provide loans at high risk in hopes of high returns.

Private credit has a reputation for being directed at smaller, middle-market companies that are highly leveraged and potentially unable to secure traditional bank financing. While these firms may offer higher yields to offset the risk, they are more vulnerable to financial shocks.

What comes next

The debate over private credit’s risks won’t end with these bankruptcies. Braziler expects more fraud cases to emerge: “Just the abundance of credit, it makes sense that you’re going to have more of these bad characters.” However, he doesn’t see systemic risk to the banking sector.

Tim Hynes, global head of credit research at Debtwire, expects continued stress but not catastrophe: “The weakest companies are starting to get hit as a result of the tariffs and economic slowdown. You’re going to see an increase in bankruptcies, but there isn’t systemic risk.”

The real test may be transparency. Unlike BSL loans with daily market pricing, private credit valuations are less transparent, being updated quarterly using subjective methodologies. “It is really opaque,” Braziler notes. “It’s really hard to get a good understanding of who the end borrower is.”

As BlackRock doubles down with its $12 billion HPS acquisition and Dimon warns of cockroaches, the private credit industry faces a credibility test. The question isn’t whether some loans will default—they will. It’s whether the industry’s risk management, documentation standards, and valuation practices can pass a financial stress test.

“Anyone who has any amount of meaningful exposure to corporate credit markets, and in particularly the leverage loan corporate credit markets, should be re-examining their portfolio in excruciating detail at this moment and really thinking hard about the quality of the underwriting that has gone into making those loans and the veracity of the reporting that supports their understanding of the performance of the business,” Milgram said.

For now, the analysts who track private credit most closely see warning signs, not apocalypse. But in a market where definitional confusion obscures risk and competitive tensions drive narratives, distinguishing signal from noise is increasingly critical and difficult.

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Business

Macron warns EU may hit China with tariffs over trade surplus

Published

27 minutes ago

December 7, 2025

Jace Porter

French President Emmanuel Macron warned that the European Union may be forced to take “strong measures” against China, including potential tariffs, if Beijing fails to address its widening trade imbalance with the bloc.

“I’m trying to explain to the Chinese that their trade surplus isn’t sustainable because they’re killing their own clients, notably by importing hardly anything from us any more,” Macron told Les Echos newspaper in an interview published on Sunday.

“If they don’t react, in the coming months we Europeans will be obliged to take strong measures and decouple, like the US, like for example tariffs on Chinese products,” he said, adding that he had discussed the matter with European Commission President Ursula von der Leyen.

Macron has just returned from a three-day state visit in China, where he pressed for more investment as Paris seeks to recalibrate its relationship with the world’s second-largest economy. France’s goods trade deficit with China reached around €47 billion ($54.7 billion) last year, according to the French Treasury. Meanwhile, China’s goods trade surplus with the EU swelled to almost $143 billion in the first half of 2025, a record for any six-month period, according to data released by China earlier this year.

Tensions between France and China escalated last year after Paris backed the EU’s decision to impose tariffs on Chinese electric vehicles. Beijing retaliated by imposing minimum price requirements on French cognac, sparking fears among pork and dairy producers that they could be targeted next.

‘Life or Death’

Macron said the US approach to China was “inappropriate” and had worsened Europe’s position by diverting Chinese goods toward the EU market.

“Today, we’re stuck between the two, and it’s a question of life or death for European industry,” Macron said, while noting that Germany — Europe’s biggest economy — doesn’t entirely share France’s stance.

In addition to Europe needing to become more competitive, the European Central Bank too has a role to play in strengthening the EU’s single market, Macron said, arguing that monetary policy should take growth and jobs into account, not just inflation, he said.

He also said the ECB’s decision to continue selling the government bonds it holds risks pushing up long-term interest rates and weighing on economic activity.

“Europe must — and wants to — remain a zone of monetary stability and credible investment,” Macron said.

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Business

What bubble? Asset managers in risk-on mode stick with stocks

Published

58 minutes ago

December 7, 2025

Jace Porter

There’s a time when investments run their course and the prudent move is to cash out. For global asset managers who’ve ridden double-digit gains in equities for three straight years, that time is not now.

“Our expectation of solid growth and easier monetary and fiscal policies supports a risk-on tilt in our multi-asset portfolios. We remain overweight stocks and credit,” said Sylvia Sheng, global multi-asset strategist at JPMorgan Asset Management.

“We are playing the powerful trends in place and are bullish through the end of next year,” said David Bianco, Americas chief investment officer at DWS. “For now we are not contrarians.”

“Start the year with sufficient exposure, even over-exposure to equities, predominantly in emerging market equities,” said Nannette Hechler-Fayd’herbe, EMEA chief investment officer at Lombard Odier. “We don’t expect a recession in 2026 to unfold.”

Those assessments came from Bloomberg News interviews with 39 investment managers across the US, Asia and Europe, including at BlackRock Inc., Allianz Global Investors, Goldman Sachs Group Inc. and Franklin Templeton.

More than three-quarters of the allocators were positioning portfolios for a risk-on environment through 2026. The thrust of the bet is that resilient global growth, further developments in artificial intelligence, accommodative monetary policy and fiscal stimulus will deliver outsize returns in all fashion of global equity markets.

The call is not without risks, including simply its pervasiveness among the respondents, along with their overall high degree of assuredness. The view among the institutional investors also aligns with that of sell-side strategists around the globe.

Should the bullishness play out as expected, it would deliver a stunning fourth straight year of bumper returns for the MSCI All-Country World Index. That would extend a run that’s added $42 trillion in market capitalization since the end of 2022 — the most value created for equity investors in history.

That’s not to say the optimism is without merit. The artificial intelligence trade has added trillions in market value to dozens of firms plying the industry, but just three years after ChatGPT broke into the public consciousness, AI remains in the early phase of development.

No Tech Panic

The buy-side managers largely rejected the idea that the technology has blown a bubble in equity markets. While many acknowledged some pockets of froth in unprofitable tech names, 85% of managers said valuations among the Magnificent Seven and other AI heavyweights are not overly inflated. Fundamentals back the trade, they said, which marks the beginning of a new industrial cycle.

“You can’t call it a bubble when you’re seeing tech companies deliver a massive earnings beat. In fact, earnings from the sector have outstripped all other US stocks,” said Anwiti Bahuguna, global co-chief investment officer at Northern Trust Asset Management.

As such, investors expect the US to remain the engine of the rally.

“American exceptionalism is far from dead,” said Jose Rasco, chief investment officer at HSBC Americas. “As artificial intelligence continues to spread around the globe, the US will be a key participant.”

Most investors echoed the sentiment expressed by Helen Jewell, international chief investment officer of fundamental equities at BlackRock, who suggested also searching outside the US for meaningful upside.

“The US is where the high-return high-growth companies are, so we have to be realistic about that. But those are already reflected in valuations, and there are probably more interesting opportunities outside the US,” she said.

International Boom

Profits matter above all else for equity investors, and huge bumps in government spending from Europe to Asia have stoked estimates for strong gains in earnings.

“We have begun to see a meaningful broadening of earnings momentum, both across market capitalizations and across regions, including Japan, Taiwan, and South Korea,” said Wellington Management equity strategist Andrew Heiskell. “Looking into 2026, we see clear potential for a revival of earnings growth in Europe and a wider range of emerging markets.”

India is one of the most compelling opportunities for 2026, according to Goldman Sachs Asset Management’s Alexandra Wilson-Elizondo, global co-head and co-chief investment officer of multi-asset solutions.

“We see real potential for India to become the Korea-like re-rating story of 2026, a market that transitions from tactical allocation to strategic core exposure in global portfolios,” she said.

Nelson Yu, head of equities at AllianceBernstein, said he sees improvements outside of the US that will mandate allocations. He noted governance reform in Japan, capital discipline in Europe and recovering profitability in some emerging markets.

Small Cap Optimism

At the sector level, the investors are looking for AI proxies, notably among clean energy providers that can help meet the technology’s ravenous demand for power. Smaller stocks are also finding favor.

“The earnings outlook has brightened for small-capitalization stocks, industrials and financials,” said Stephen Dover, chief market strategist and head of Franklin Templeton Institute. “Small-cap stocks and industrials, which are typically more highly leveraged than the rest of the market, will see profitability rise as the Federal Reserve trims interest rates and debt servicing costs fall.”

Over at Santander Asset Management, Francisco Simón sees earnings growth of more than 20% for US small caps after years of underperformance. Reflecting the optimism, the Russell 2000 Index of such equities recently hit a record high.

Meanwhile, the combination of low valuations and strong fundamentals makes health care one of the most compelling contrarian opportunities in a bullish cycle, a preponderance of managers said.

“Health-care related sectors can surprise to the upside in the US markets,” said Jim Caron, chief investment officer of cross-asset solutions at Morgan Stanley Investment Management. “This is a mid-term election year and policy may at the margin support many companies. Valuations are still attractive and have a lot of catch up to do.”

Virtually every allocator struck at least a note of caution about what lies ahead. The top worry among them was a rekindling of inflation in the US. If the Fed is forced by rising prices to abruptly pause or even end its easing cycle, the potential for turbulence is high.

“A scenario — which is not our base case — whereby US inflation rebounds in 2026 would constitute a double whammy for multi-asset funds as it would penalize both stocks and bonds. In this sense it would be much worse than an economic slowdown,” said Amélie Derambure, senior multi-asset portfolio manager at Amundi SA.

“The way investors are headed for 2026, they need to have the Fed on their side,” she added.

Trade Caution

Another worry is around President Donald Trump’s capriciousness, particularly when it comes to trade. Any flareup in his trade spats that fuels inflation through heightened tariffs would weigh on risk assets.

Oil and gas producers remain unloved by the group, though that could change if a major geopolitical event upends supply lines. While such an outcome would bolster those sectors, the overall impact would likely be negative for risk assets, they said.

“Any geopolitical situation that can affect the price of oil is what will have the largest impact on the financial markets. Clearly both the Middle East and the Ukraine/Russia situations can impact oil prices,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

Multiple respondents flagged European autos as a “no-go” area for 2026, citing intense competitive pressure from Chinese carmakers, margin compression and structural challenges in the transition to electric vehicles.

“Personally I don’t believe for a minute that there will be a rebound in the sector,” said Isabelle de Gavoty at Allianz GI.

Outside of those worries, most asset managers simply believe that there’s little reason to fret about the upward momentum being interrupted — outside, of course, from the contrarian signal such near-uniform bullishness sends.

“Everyone seems to be risk-on at the moment, and that worries me a bit in the sense that the concentration of positions creates less tolerance for adverse surprises,” said Amundi’s Derambure.

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Business

Trump says Netflix-Warner Bros. deal ‘could be a problem’

Published

1 hour ago

December 7, 2025

Jace Porter

President Donald Trump raised potential antitrust concerns for Netflix Inc.’s planned acquisition of Warner Bros. Discovery Inc., noting that the market share of the combined entity may pose problems.

“Well, that’s got to go through a process, and we’ll see what happens,” Trump said when asked about the deal as he arrived at the Kennedy Center for an event, confirming that he has met Netflix co-CEO Ted Sarandos last week and complimenting the streaming company. “But it is a big market share. It could be a problem.”

The $72 billion deal would combine the world’s No. 1 streaming player with the No. 4 service HBO Max, which has raised red flags from antitrust regulators.

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