Global Asset Allocation | Insights | Private Credit: Not a Bubble, But the Ballast of This Cycle

PrivateCredit #ARR5

Concerns surrounding private credit have persisted throughout the year. This feature report provides a systematic review across six dimensions:

1. Noise vs. Reality: Rising Risks Do Not Equate to a Systemic Bubble

Isolated credit events and redemption pressures largely reflect amplified short-term sentiment rather than a deterioration of the sector as a whole.

2. Funding Side: Institutional Allocations Remain Steady; Retail Sentiment Amplifies Volatility

Long-term institutional capital continues to flow into the asset class. Market volatility stems primarily from retail investors and redemptions in semi-liquid products.

3. Financing Structure: Growth Driven by Channel Migration, Not Leverage Excess

The expansion of private credit is largely attributable to market share migration from bank lending and high-yield bonds, rather than an indiscriminate buildup of leverage.

4. Asset Quality: Default Rates Remain Contained, but Stress Requires Monitoring

Current default and non-accrual rates remain manageable. However, close attention must be paid to borrower cash flow stress amid a sustained high-rate environment.

5. Manager Landscape: The True Differentiator Lies in the Manager, Not the Asset Class

Future return dispersion will hinge increasingly on managers’ investment discipline, risk management capabilities, and workout expertise.

6. Allocation Conclusion: Shifting from “Whether to Allocate” to “How and to Whom”

Private credit retains its long-term strategic value. Investors should prioritize top-tier managers and avoid indiscriminate allocation.

Summary:

Rather than facing a bubble burst, private credit is entering a phase of manager bifurcation within this high-rate cycle. High-quality platforms continue to offer compelling long-term allocation value.

Merit Asset Management

June 29, 2026