LIVE MARKETS-No systemic risk from private credit, Unicredit says
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NO SYSTEMIC RISK FROM PRIVATE CREDIT, UNICREDIT SAYS
Scrutiny of the private credit universe has intensified in recent weeks, alongside concerns about whether stress in the sector could spill over into broader markets. Italian bank UniCredit, however, sees no such risk.
In a recent note, UniCredit credit strategist for financials Michael Teig says the asset class poses no systemic threat, assessing current strains through the lenses of liquidity and credit.
On liquidity, he argues recently imposed redemption limits are preventing "cliff‑edge liquidity stress," although he expects the size of the $1.8 trillion private-credit market to shrink in 2026 after a decade of strong growth.
Redemption requests from investors have risen sharply, prompting many funds to limit or halt withdrawals.
On the credit side, Teig points to signs of deterioration, with default rates rising from about 1% in 2024 to 4% in February 2026, according to Morningstar DBRS data. Borrowers are also increasingly relying on payment-in-kind structures.
The combination of weaker liquidity and credit quality is likely to push default rates higher over the next year, UniCredit says. Still, it views this risk as adequately priced and sees no systemic risk.
Teig says reduced funding in private credit, a key pillar in the hyperscalers' huge AI capex plans, might dampen large-scale capex.
Traditional banking is also involved. All big U.S. banks and several EU banks have large exposure to private credit, he says.
Those positions are generally collateralised, though, and near-term losses should remain manageable even if defaults rise, Teig said.
Banks are also becoming more cautious on the valuation of the collateral, which further reduces liquidity.
"Nonetheless, news regarding further private-credit stress could continue to weigh on these banks' equity and credit valuations," Teig said.
(Lucy Raitano)
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