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Private credit’s recent ructions have meant that some trust in the market has been eroded.
The sector has seen some negative headlines following the bankruptcy of two US firms – Tricolor and First Brands – with fingers pointed at the private credit space, and particularly its due diligence and lending practices.
Private credit has grown in recent years to become a large part of many insurance companies' investment portfolios.
Private credit has been predicted to largely weather the recent storm; however, there could be some changes.
This week, Sitara Sundar, Head of Alternative Investment Strategy at JPMorgan Private Bank, said to Bloomberg that while she doesn't believe the growth in private credit markets poses a systemic risk, pockets of idiosyncratic risk will bubble up.
Elsewhere, others are more positive.
“Within insurance portfolios, we continue to see strong demand broadly for private credit, though the pace of new allocations has moderated somewhat following a decade-plus of continued expansion,” said Katie Cowan, Head of Insurance Client Solutions at First Eagle Investments.
“Is private credit, in terms of a systemic risk, something
I’m worried about? No."
Cowan was one of many who specified their belief that private credit was an important part of investment strategies. Their commitment was not dimmed by any of the scandals that have become part of the conversation around it over the past month.
“We are seeing insurers, like other institutional investors, becoming more selective, particularly in the traditional corporate direct lending space – focusing on sectors and structures that offer differentiated yield and strong covenant protection,” she said.
However, the market does have nerves. At the AM Best Europe Insurance Market briefing this week in London, the keynote speaker, Jérôme Jean Haegeli, Group Chief Economist & Head of Swiss Re Institute, was asked during his presentation on the Economic and Geopolitical Outlook if private credit’s recent turmoil was a risk. One of several times during the day that speakers were asked about it by the audience. “Is private credit, in terms of a systemic risk, something I’m worried about? No,” he said, echoing Sundar’s comments from earlier in the week.
“The underwriting quality has degraded,” he added.
However, he warned that private credit’s quality has “degraded” and that it needs greater sophistication in how it is handled.
Private credit's influence spreads across the economy and is a major player in funding the current AI race, Haegeli said.
The private credit market has grown rapidly over the last decade, following the global financial crisis, when banks retrenched from lending, creating a gap in the market.
Laura Vaughan, Head of Direct Lending at Federated Hermes, told Insurance Investor late last year that the private credit market was strong and that differentiating product offerings was the key to success in it.
“It has the potential to offer low volatility, because it's not a marked market,” she said. “It is valued quarterly, but based on bespoke valuation policies, which means, as markets spike and trough, the direct lending loans aren't impacted by the swings, so it provides stability in an overall portfolio.”
Vaughan said that quarterly cash income offers an attractive element for investors, such as insurance companies that are seeking liability-matching income portfolios.
Also, allocations to low-risk direct lending strategies can come from either their fixed income bucket to provide a counterweight to a more volatile or higher-risk bond portfolio or from their alternatives bucket to offer a counterweight against a full unitranche or private equity strategy.
This means that it’s unlikely, despite any issues, that many will turn away from the sector.
Several asset managers spoken to by Insurance Investor said that what is particularly interesting is how the investor landscape has evolved around private credit and what the headlines will mean.
The recent hits have come at a time of great change and expansion for the market. “On one hand, we’re seeing large institutional investors – who were early adopters – starting to expand their strategies,” said Marco Busca, Head of Indirect Private Debt at Generali Asset Management (part of Generali Investments). “They’re moving beyond traditional direct lending into more niche and complex areas like asset-based lending, special situations, and even participating in the emerging secondary market for private credit. These strategies offer higher yields and more tailored risk profiles.
“It’s becoming a much more dynamic and inclusive market, and that’s creating
both opportunities and challenges for fund managers and allocators alike."
Busca said that “on the other hand”, there’s a growing wave of smaller investors entering the space, which could mean change, and could be part of the trend Haegeli said about the smaller, less experienced entrants possibly bringing more risk with them. “Historically, private credit was inaccessible to them due to high minimums and long lock-up periods. But that’s changing thanks to innovations like semi-liquid fund structures and digital investment platforms, which are making it easier for individuals to gain exposure,” he said.
Busca added that while the asset class is growing, what was changing was the sophistication and diversity of the investor base. “It’s becoming a much more dynamic and inclusive market, and that’s creating both opportunities and challenges for fund managers and allocators alike,” he said.
Rather than backing away from the space, many spoke of its unique place in the market, particularly as a key outlet for diversification.
“This evolution is driven by ongoing regional bank retrenchment
and the growing demand for private capital solutions.”
In fact, it is widely seen as on an upward trajectory and expanding its footprint. “While the US has historically dominated the direct lending landscape, being more established, greater attention is now being directed toward opportunities in Europe and Asia-Pacific,” said Orla Walsh, Managing Director and Portfolio Manager, Barings’ Global Private Finance Group.
“This evolution is driven by ongoing regional bank retrenchment and the growing demand for private capital solutions.”
Private market demand remains robust among insurers, according to BlackRock’s Global Insurance Report 2025, which specified private credit’s rise.
The survey said that 58% of respondents are satisfied with their current private markets exposure, and 30% of respondents plan to increase it. Direct lending, infrastructure, and multi-alternative strategies were among the top asset classes targeted for expansion. “Smaller insurers show a stronger preference for multi-alternatives, which can offer a more efficient path to diversification across private assets,” it said. “Globally, insurers continue to favour private credit, infrastructure, and private asset-backed.”
BlackRock said that while private credit offers insurers the potential opportunity to enhance yield on a credit risk-adjusted basis, the assets are typically harder to source, involve additional considerations from an underwriting perspective, and are not as “turnkey” from a deployment, portfolio monitoring, and reporting perspective as public debt.
“Primarily, our private market investments are concentrated in credit strategies, with a preference for floating-rate assets,” said Jean-Baptiste Tricot, Group CIO, AXA, in the BlackRock report. “This approach limits our exposure to interest rate duration risk, facilitates FX hedging, and supports a more global sourcing of investments.
The asset class remains firmly in the sights of insurers and institutional investors. The underlying fundamentals of yield appeal and diversification against traditional fixed-income still hold. Moving forward, the emphasis will shift from expansion to selectivity.
As the sector enters its next phase, the question isn’t if private credit will grow, but how it will evolve to meet higher standards of scrutiny and resilience.
“We expect private credit to remain a growing component of our allocation in the coming years,” said Tricot.
The market will just have to hope that growth is matched by quality.
