Jamie Dimon, CEO of JPMorgan Chase, raised eyebrows recently with a warning about cracks emerging in the private credit market. After the collapse of a few sub-prime car-loan lenders linked to private credit funds, he said: “My antenna goes up when things like that happen. And I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this.”
Dimon’s point was deliberate, it was about awareness. When isolated failures appear in a system built on confidence, it’s rarely an isolated problem. Private credit has expanded at a breathtaking pace globally as investors chase yield in a low-rate world. In Australia, it’s now a $224 billion market. That includes $132 billion in corporate and business lending and $92 billion in commercial real estate. The sector’s rapid growth has now drawn the attention of regulators.
ASIC chair Joe Longo warned this week that private credit faces major problems if complacency continues. The regulator’s surveillance report found opaque fees, aggressive marketing, and inconsistent valuation practices, with some behaviour “close to illegal.” I’ve downloaded the report and read it today and it reinforces all the concerns I have about the sector. As Longo put it, “In times of prosperity when money flows freely, no one worries about liquidity. However, it’s the first thing everyone will miss in a crisis.”
The problem isn’t that private credit is inherently flawed. Done well, it fills a legitimate gap between banks and borrowers, supporting business investment and economic growth. But when the focus shifts from quality to scale, risk management becomes an afterthought. In too many cases, loans are made because they can be sold, not because they should be made. No one is incentivised to say no.
The real test comes when the repayments stop. That’s when investors discover what these portfolios are truly backed by. Some loans are secured by property, but many rely on looser definitions of “assets”, anything from invoices and raw materials to plant or machinery. They look great on a spreadsheet, but in a downturn, those assets can be difficult to value or sell. A theoretical asset is not the same as a liquid one.
Defaults are a normal part of credit markets, but in this corner of finance, the safeguards vary widely. ASIC’s findings revealed that some funds even define “default” differently, making true comparisons impossible. In a benign environment, that inconsistency is overlooked; in a stressed one, it magnifies contagion risk.
History tells us these cycles rarely end neatly. A few isolated losses are rationalised, confidence holds, until it doesn’t. Then the feedback loop between leverage and liquidity tightens. The pattern may not mirror 2008, but the psychology is familiar.
At some point, private credit will face its reckoning. It will separate lenders built on discipline from those built on momentum. That’s why I’ve avoided the sector despite its popularity. In too many cases, investors are taking equity-like risk for bond-like returns, a trade-off that only looks good in fair weather. The bigger concern is the systemic risk presents to the broader economy. When growth outpaces governance, and confidence replaces caution, risk hides in plain sight.
General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.