LIVE MARKETS-Private credit: flexible, but risky?

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PRIVATE CREDIT: FLEXIBLE, BUT RISKY?

Once a niche corner of the market, private credit funds, now manage an estimated $2 trillion in assets in the U.S., accounting for roughly 5% of total household and firm credit, Goldman Sachs says.

Private credit funds - many of which are "direct lending" funds that involve bilateral origination between a borrower and one or a few lenders - lend heavily to the technology, consumer discretionary, and healthcare sectors, Goldman Strategists note.

They add that the private credit industry's largest investors are pension funds, foundations, and insurance companies, although individual wealth and retail investors have meaningfully increased their participation as well and now account for about $200 billion in assets.

Private credit is also increasingly funding AI data centres, according to UBS.

The bank estimates that private credit loans related to AI may have nearly doubled in the 12 months through early 2025.

While both Goldman and UBS acknowledge that such loans offer greater flexibility, they caution that these instruments can become difficult to trade during periods of market stress, potentially amplifying financial instability.

(Joel Jose)

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