Swiss private equity firm Partners Group Chair Steffen Meister has warned that default rates in private credit could double over the next few years, as lenders may bear the full downside of AI-driven economic disruption, while seeing only limited upside, the Financial Times reported on Thursday.
Private credit would be disproportionately affected by the AI-driven economic disruption relative to private equity, as it would lead to a bifurcation of outcomes with more companies performing particularly well or badly, he told the FT.
Meister’s comments come as investor concerns about the $2 trillion industry deepen, driven by worsening credit quality and the threat artificial intelligence poses to the business models of software companies private credit lenders have high exposure to.
He told FT that annual defaults in private credit averaged 2.6% over the past decade and that default rates had been “so low” that private credit lenders managed diversified portfolios of loans that they then levered again.
The private credit market has been gripped by anxiety since the bankruptcies of auto-parts maker First Brands and subprime lender Tricolor last year.
The fallout has sharpened scrutiny of a market that has grown quickly, drawing large institutional investment and rising corporate lending in recent years.
JPMorgan Chase reduced the value of some loans to private credit funds after reviewing the impact of market turmoil around software companies, two sources told Reuters on Wednesday.
Last week, BlackRock said it limited withdrawals from a flagship debt fund after a surge in redemption requests, while Blackstone disclosed that its private credit fund, known as BCRED, faced a surge in withdrawals in the first quarter.
Reuters
