Why Private Credit May Be the Next Financial Crisis
This essay was originally published via my newsletter.
One quarter Infinite Commerce Holdings had a book value of 100. The next quarter it was 0. BlackRock, the world’s largest asset manager, had marked down this private credit loan seemingly overnight.
No market. No recourse. No explanation.
Many retail investors were left holding the bag. And “retail” in this context is simply finance jargon for ordinary people who may not even realize they’re invested in BlackRock’s private credit fund through their 401(k).
You might think that this is a default story; that Infinite Commerce Holdings had it coming. That it must be an isolated incident given this Amazon aggregator that sold everything from spa treatments to light bulbs was doomed to fail eventually.
But I’m here to tell you this isn’t a default story.
It isn’t an isolated incident.
Default rates are rising across the private credit industry according to Fitch Ratings, recently doubling monthly averages from 2025. Drastic 100 to 0 markdowns are becoming increasingly common, from Tricolor to First Brands. More funds like Blue Owl and Morgan Stanley are gating off redemptions (preventing investors from getting their money).
All of this is happening not because of a few bad private credit cockroaches. It’s happening because private credit shares some of the same structural problems that brought down mortgage-backed securities and collateralized debt obligations (CDOs) in the 2008 financial crisis.
This is a valuation story that rhymes with 2008.
Private credit is basically debt cloaked in darkness.
Private credit is the finance term for loans made outside the banking system. Usually an asset manager like BlackRock or Blue Owl will lend money to companies that can’t or won’t access public debt markets.
The bulk of this lending is direct, with typical duration between 4 and 6 years and a floating rate tied to SOFR. The private credit model was prevalent in the 2019 to 2021 era when capital was cheap, lending standards were loosest, and deal volume was highest (especially in software and tech).
I highlight this deal flow because much of it is coming due in the next 12 to 18 months. It’s hitting a refinancing wall. The borrowers who took on floating rate debt when rates were near zero (in and around COVID) are now servicing that debt at materially higher rates, and some won’t be able to refinance on acceptable terms.
And there’s another red flag in the private credit lending model — explosive growth. In 2015 the U.S. private credit market was around $500 billion in volume. In 2026 it’s grown to nearly $2 trillion and climbing.
You simply can’t enjoy that degree of growth without loosening standards (remember Countrywide enjoying explosive mortgage growth by originating them for basically anyone in the run-up to 2008?).
Private credit’s growth wasn’t organic. It was the direct result of post-2008 bank regulation that pushed risk off bank balance sheets. I helped JPMorgan implement policies and controls during that mid-2010s period when new laws, particularly under Dodd-Frank, were going into effect.
Capital had to go elsewhere. Investors hungry for yield were chasing returns. And private equity folks needed financing partners.
Add to this brew Executive Order 14330 — literally titled “Democratizing Access to Alternative Assets for 401(k) Investors” — signed by President Trump in August 2025 and you have a toxic combination. Because now those private credit “alternative assets” are no longer limited to the portfolios of institutions, pensions, and endowments. They’re increasingly held by retail investors through vehicles like Blue Owl’s private credit fund (which they recently gated off so investors can’t easily withdraw funds).
But none of these factors are the biggest problem. Nobody truly knows what private credit funds are worth because there’s little transparency. Unless you’re one of the parties to a loan, you have limited visibility into the deal terms or credit quality.
It’s debt cloaked in darkness. And it has a valuation problem.
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