Private credit has grown into a $1.5–2.0 trillion market, expanding well beyond its traditional focus on mid-sized businesses and institutional investors like pension funds and insurers. It is now financing larger companies and increasingly reaching retail investors — but this growth is bringing new risks into focus.
The Financial Stability Board’s (FSB) latest report warns that the sector has never been stress-tested through a severe economic downturn, leaving leverage and borrower credit quality vulnerabilities untested. Key concerns include deepening ties between private credit funds and banks (direct exposures estimated between $220 billion and $500 billion); borrowers that are generally more leveraged and of lower credit quality than in public markets, with early signs of stress emerging; valuation opacity through complex, multi-layered structures and reliance on private ratings; and liquidity mismatches in funds offering investor redemptions. Data gaps across jurisdictions further hinder effective oversight.
The FSB is calling on authorities to close those data gaps, deepen analysis of interlinkages with insurers and private equity, and align supervisory approaches on risk management and valuation practices.
