The IMF in a financial sector stability blog says „fast-growing $2 trillion private credit market warrants closer watch“

The IMF yesterday in a writeup put the private credit market at $2.1 trillion globally, with 75% of that total in the U.S. – the blog discusses how private credit emerged three decades ago as a financing source for companies too large/risky for commercial banks and too small to raise debt in public markets.

Private credit has delivered high returns with what appears to be low volatility.

And, „today, immediate financial stability risks from private credit appear to be limited. However, given that this ecosystem is opaque and highly interconnected (…) existing vulnerabilities could become a systemic risk for the broader financial system.“

Among those fragilities highlighted:

– companies that tap private credit tend to be smaller and carry more debt than counterparts with leveraged loans and public bonds

– private market loans rarely trade, and therefore can‘t be valued using market prices.

– while leverage seems low, the potential for multiple layers of hidden leverage does raise concerns given the lack of data.

– there appears to be a significant degree of interconnectedness in the private credit ecosystem.

– a growing retail presence may alter liquidity risks.