Leading hedge fund managers have warned that private credit faces growing risks from elevated interest rates, slowing corporate growth and a wave of debt maturities in 2027 and 2028, according to a report by Bloomberg, citing comments made at the Global Financial Leaders’ Investment Summit in Hong Kong.
Tony Yoseloff, chief investment officer at Davidson Kempner Capital Management, reportedly said private credit faces greater challenges than public credit markets, highlighting its exposure to software companies. Approximately one-third of US private credit loans have followed private equity investment into the software sector, leaving lenders vulnerable to valuation pressures and potential disruption from artificial intelligence.
John Aylward, chief investment officer at Sona Asset Management, reportedly pointed to deteriorating credit conditions, noting that five-year cumulative default rates in the broader syndicated loan market have exceeded levels recorded during the 2008 financial crisis. He warned that private credit shares many of the same borrowers but typically finances smaller, riskier companies.
The concerns follow rapid expansion in direct lending, with higher borrowing costs and approaching refinancing deadlines putting pressure on leveraged companies. Investors have also increased scrutiny of fund liquidity following redemption pressures and several high-profile credit failures.
Despite the risks, Yoseloff identified opportunities in performing credit offering mid-teen returns, particularly in Asian markets, while Farallon Capital’s Nicolas Giauque highlighted improving opportunities in lower-rated corporate debt.
