Fitch Ratings warns that private credit could act as a significant transmission channel during future financial crises, potentially amplifying systemic shocks and negatively impacting a wide array of investors. The ratings firm suggests the rapidly expanding asset class is showing “bubble-like” characteristics, including financial innovation, increased competition, growing retail participation, and rising leverage.
The Fitch report emphasises the need for continuous, close monitoring of the private sector, advocating for greater transparency within the industry. A Fitch analyst noted that more consistent disclosures would enable market participants to better assess risks and resilience.
Despite these concerns, Fitch currently does not consider the risks associated with private credit to be systemic. The $US1.7 trillion ($2.6 trillion) market remains a relatively small component of the overall financial system. Furthermore, it relies on funds that generally have committed capital and moderate leverage.
The report surfaces amid increasing concerns about excessive risk-taking in credit markets. These concerns include the resurgence of large leveraged buyouts and the recent collapses of companies such as First Brands Group and Tricolor Holdings. Analysts and regulators have also been increasingly vocal about underlying vulnerabilities within private markets.
