Private credit's reputation test

With thanks to Gregory for their contribution to this article.

Private credit has grown from a niche strategy into a $3 trillion+ asset class, but with scale has come scrutiny. Recent headlines – from high-profile bankruptcies to pointed warnings about potential systemic risk – have placed the sector under an uncomfortable spotlight. Strains at a Blue Owl fund continue to stir nerves, exposing weaknesses in parts of the market that have powered private credit’s rapid growth. Meanwhile, concentrated exposure to sectors such as software – with the disruptive impact of AI – has added another layer of uncertainty.

When prominent industry figures start invoking “canaries in the coal mine,” reputational risk rises quickly. In this vast, complex and often opaque market, perception can move fast and land hard. But painting the entire asset class with the same brush risks missing the nuance.

Beneath the headlines sits a highly diverse ecosystem of strategies, underwriting standards and sector specialisations. As investor caution climbs and fundraising competition intensifies, the managers most likely to stand out will be those who can clearly articulate what differentiates their approach – whether that is disciplined credit selection, how risk is underwritten, structural downside protection, niche or asset-backed strategies, secondaries capabilities, or AI-enabled sourcing and diligence.

Communication can be the real competitive advantage. Here are some ways private credit managers can sharpen their narrative and build confidence with LPs:

1. Demonstrating underwriting discipline in an opaque market: It’s no longer enough to say you are “selective” or “disciplined.” LPs want to understand what that looks like in practice. That means clearly communicating frameworks and structuring expertise.

For example:

• Typical leverage multiples used across transactions
• Structural protections embedded in deals
• The share of deals that are covenant-lite
• How frequently stress cases are modelled and which downside scenarios are considered
• The proportion of deals that are turned away during underwriting and why

Underwriting is the first line of reputational defence.

2. Explain valuations and NAV governance in detail: Private credit’s valuation mechanics – particularly in evergreen or semi-liquid vehicles – have become a focal point of scrutiny.

In periods of stress, valuation methodology becomes more than accounting – it becomes a confidence test.

Managers should articulate:

• Whether loans are valued internally or by independent third parties
• Frequency of valuation updates
• Triggers that lead to a mark-down
• Policies for non-accruals and restructurings
• Nature of independent oversight

Transparency around valuation governance helps prevent uncertainty from becoming reputational risk.

3. Liquidity architecture: Illiquidity is a structural feature of private credit. The problem arises when liquidity terms do not align with the duration of underlying assets. Illiquidity is not inherently problematic, but mismatch is.

Managers should clearly explain:

• How fund liquidity terms align with loan maturity profiles
• Redemption gating mechanisms and when they may be used
• Stress-testing scenarios for redemption waves
• Use (or limits) of leverage
• Role of secondary markets as a portfolio management tool

A transparent explanation of liquidity architecture shows structural discipline, while also reassuring LPs that growth has not outpaced operational safeguards.

4. Technology as a proof point: Given recent concerns around concentrated exposure in software, private credit managers should differentiate themselves by showing how technology enhances:

• Early warning systems
• Portfolio-wide covenant monitoring
• Concentration heat maps across sectors and geographies
• Cross-portfolio correlation analysis to identify hidden risk clusters
• Data-driven underwriting calibration
• Macro stress modelling and predictive analytics
• Deal sourcing intelligence

Amid concern about blind spots and “credit cockroaches”, data transparency and real-time monitoring are valuable differentiators.

5. Explain risk culture, not just risk controls: Underwriting frameworks and technology matter. But LPs ultimately want to know how risk decisions are made.

Managers should demonstrate:

• Clear separation between origination and risk committees
• Independent valuation or portfolio review functions
• Frequency and structure of credit committee meetings
• Escalation processes for deteriorating credits
• Default history, recovery rates and experience through cycles

Robust governance structures – and a willingness to show the data – show institutional maturity.

6. Make reporting clear and timely to help avoid nasty surprises: The best antidote to speculation is proactive reporting.

Managers should provide:

• Clear dashboards showing sector, borrower and sponsor concentration
• Transparency on watchlists and non-accrual trends
• Commentary linking macro developments to portfolio positioning
• Forward-looking risk commentary
• Clear communication around emerging issues

Tackling emerging issues early builds credibility. In a fragile sentiment environment, disciplined communication is a form of risk management.

Over the past decade, the private credit market has evolved from a niche lender to a major force in areas traditionally dominated by banks. Assets managed by the five largest private credit managers alone more than doubled between 2020 and 2025, reaching roughly $2 trillion[1], highlighting how rapidly capital has concentrated and scaled within the sector. Looking ahead, the broader market is projected by some estimates to hit $5 trillion by 2029.

Blue Owl may have cast a shadow, but scrutiny can also be healthy for a market that has grown as quickly as this one. Greater scale brings greater expectations around transparency, governance and risk discipline. As private credit becomes a greater feature of the financial markets and more available to investors, managers need to ensure they not only have institutional-grade operations and processes, but explain them with clarity and conviction. Clear communication can be a crucial safeguard.

References

[1] https://www.spglobal.com/en/research-insights/special-reports/look-forward/partner-perspectives/unlocking-potential-ahead-with-vanguard/unlocking-the-next-stage-of-private-credit-growth