Among financial assets, private credit stands out for its calm: steady returns, a volatility that seems trifling next to listed bonds or equities. This calm reassures, and it sells dear. But it is suspect. For these loans almost never trade: no market sets their price. It is the lender itself that estimates what its claim is worth. The serenity on display is not the absence of risk; it is the absence of pricing. And the one passes itself off as the other.
1 Two trillion in the shadows
A market born from the retreat of the banks, grown colossal.
The rise
When banks withdraw, funds lend
Private credit refers to loans extended directly to companies by investment funds, outside the banking system and outside listed markets. Born from the great retreat of the banks after 2008, when regulation (Basel III) made it costlier for them to hold risky loans, it filled the financing gap for mid-sized companies. The result is dizzying: from about $500 billion ten years ago, the market has surpassed $2 trillion, a tenfold increase. A handful of giant managers, Apollo, Blackstone, Ares, Blue Owl, dominate the bulk of it, and by early 2026 the banks had ceded close to 90% of the leveraged financing of mid-market companies to these funds.
The global market
~$2 trillion
of private credit, projected toward $3 trillion by 2028 (IMF, FSB, Moody's).
Growth
× 10
in fifteen years, since the crisis of 2008.
Money pours in, and wants in further still
The enthusiasm shows no sign of fading: in late 2024, BlackRock acquired the manager HPS for $12 billion to build a giant franchise. Above all, private credit is opening to individuals through "semi-liquid" funds whose assets exceed $530 billion. The asset class is changing scale: what was once reserved for institutions is arriving in the savings of the general public.
2 The calm that intrigues
A regularity too good not to raise questions.
The serenity on display
More stable than anything it compares to
On the charts, private credit is remarkably placid. Where high-yield bonds or listed loans rise and fall with the market's moods, the value of private credit seems to glide, smooth, almost insensible to the shocks. For the investor, it is a powerful selling point: a high return without the roller coaster. But this stability ought to intrigue, for the underlying assets are no safer than their listed cousins.
The proof by the mirror
A natural experiment shows it. Some of these funds, the listed BDCs, see their price fluctuate every day; others, the direct-lending funds, are valued only once a quarter. The assets they hold are virtually identical. Yet the former display far greater volatility than the latter. The difference therefore lies not in the nature of the asset, but in the way it is marked. The calm of private credit is a matter of method, not of substance.
3 Value by the model
Without a transaction, no price: only an estimate.
Mark-to-model
The lender estimates what its own claim is worth
Here is the heart of the matter. A private loan almost never trades: it is extended to a borrower and held to maturity. There is therefore no market price by which to value it. As the International Monetary Fund puts it, "private market loans rarely trade, and therefore can't be valued using market prices". In its place, the manager resorts to a "mark-to-model" valuation: it estimates for itself the "fair value" of the claim, from internal assumptions. In accounting terms, these assets fall under "Level 3", the most opaque, that of valuations based on unobservable inputs. The IMF bluntly calls them "stale and subjective".
Judge and party
The situation is singular: the one who holds the loan is also the one who sets its value, and that value determines its compensation and the performance it reports to its clients. This is not necessarily bad faith, but it is, by construction, a conflict of interest. "Fair value" is no longer an observed fact; it is a judgment, rendered by the party most interested in its being favourable.
4 Volatility laundering
Not marking to market means smoothing risk until it vanishes from the figures.
Volatility laundering
A real risk, laundered by the absence of pricing
Since the value is estimated and not priced, it does not react to market shocks: it is "smoothed". When equivalent listed assets fall 15%, private credit may register only a minimal decline, spread over several quarters. The reported volatility is thereby artificially low, and the risk-adjusted performance ratios flattering. The manager Cliff Asness coined a biting phrase for this: "volatility laundering". Illiquidity, he writes, was "once implicitly acknowledged, properly, as a bug, but are now clearly sold as a feature".
Risk does not vanish, it hides
Academic research confirms the intuition: by "de-smoothing" the returns to reconstruct their true variability, one finds a risk far higher than the one displayed. The danger has not been eliminated; it has been removed from view. And a risk one does not see is a risk one does not charge for: the investor pays a steep price for the apparent calm, believing they are buying safety.
5 The masked signals
When distress reads neither in the marks nor in the defaults.
The blind spots
Three ways not to see the danger coming
Opacity is not confined to smoothing. First, the "PIK" mechanism (payment-in-kind): a borrower in difficulty pays its interest not in cash but in additional debt; on paper the loan earns, while it sinks. Next, the dispersion of valuations: one and the same loan was marked simultaneously at 77, 82 and 91% of par by three different lenders. Finally, "selective" defaults: the quiet restructurings, reschedulings and debt exchanges that avoid formal default without solving the problem.
"Clean" default
~1%
the rate of missed payments, reported and reassuring.
Real default
~5%
once restructurings and switches to PIK are included.
The lag that lies
The IMF notes that more than 40% of the companies borrowing from private lenders had negative cash flow at the end of 2024, without the marks reflecting it: valuations are reported with 60 to 90 days' delay. Let us state, in fairness, that this dispersion often owes less to manipulation than to information asymmetry: the lead lender knows its borrower better. But the result is the same for the observer: distress reaches the figures with a lag, when it reaches them at all.
6 The test of reality
In 2025, the calm cracked all at once.
The first cracks
When the smoothed value meets brutal bankruptcy
The hallmark of a smoothed value is that it gives no warning: it holds, holds still, then gives way in a single stroke. The year 2025 offered illustrations of this. The auto-parts supplier First Brands filed for bankruptcy in September, with liabilities estimated at around $11 billion and suspicions of double-pledging of inventory; several creditors discovered their exposure all at once. The subprime lender Tricolor collapsed a few days earlier, inflicting on JPMorgan some $170 million in losses, against a backdrop of a fraud investigation. Isolated cases, for now; but ones that recall how the displayed stability had not seen the precipice coming.
Jamie Dimon's word
The head of JPMorgan, Jamie Dimon, summed up the worry in an image that has stuck: "when you see one cockroach, there are probably more". The analogy serves as a warning: in a universe where values are not priced, problems are discovered only at the moment they break the surface, and nothing says they are isolated.
7 The share of real calm
Let us be fair: not all the calm is an artifice.
The other version
Patient capital, no forced sales
Honesty requires acknowledging that private credit is, in part, genuinely more stable. The lender holds its claim to maturity: there is no forced seller, no market panic, no fire-sale spiral as on the exchange during a crash. This patient capital finances companies the banks no longer serve, with a close alignment between lender and borrower. And realized losses are historically low: the benchmark Cliffwater index shows, over twenty years, an average annual return of about 9.5% for losses on the order of 1% a year. Part of the serenity is therefore earned, and not accounting-made.
The sector's defence
Private-credit players judge the fears overblown. "People have really just lost their minds", said Marc Rowan, head of Apollo, denouncing "increasingly hysterical" headlines unconnected to the reality of the risk. The argument is not without force: no systemic crisis has erupted, and the model has, so far, absorbed the shocks. The real question is therefore not "is private credit dangerous?" but "does its calm tell us the truth about its risk?".
8 When opacity becomes systemic
The danger lies not in one loan, but in the size and the ties of the whole.
The regulators' concern
Untested in a prolonged downturn
What was a niche for specialists is becoming a matter of financial stability. The Financial Stability Board (FSB) sums up the concern in 2026: private credit "remains untested by a prolonged economic downturn". Three threads feed it: the arrival of the general public, which exposes unsophisticated savers to illiquid assets; the interconnection with the banks, whose exposure to private-credit funds is estimated at $220-300 billion; and "layered" leverage, borrowed at every storey of the edifice. Central banks, from the Bank of England to the ECB, have made it a priority surveillance topic.
The trap of illiquidity opened to the public
The sharpest risk arises from the meeting of illiquidity and retail. "Semi-liquid" funds promise regular withdrawals while holding assets that do not sell quickly. As long as all goes well, the balance holds. But let a wave of redemption requests arrive, and the manager will have to sell in haste loans that had never been priced, abruptly revealing the gap between the displayed value and the real value.
9 Seeing without a price
It remains not to mistake the silence for safety.
The decisive distinction
Less displayed volatility is not less risk
Everything rests on a distinction that opacity deliberately blurs: less displayed volatility is not less real risk. The absence of a price is not the absence of danger; it is only the absence of the measure that would reveal it. Private credit can be a good investment, patient and well managed; but its tranquillity, in large part, does not describe its risk, it hides it. The value that "holds" because it is never priced does not hold because it is solid: it holds because no one puts it to the test of a price.
The compass
①
Without pricing, no observation. The value of private credit is estimated by the lender, judge and party, and not observed by a market.
②
The calm is partly manufactured. The smoothing of valuations artificially lowers volatility; the risk is not removed, it is taken out of view.
③
The real share exists too. Patient capital, no forced sales, historically low losses: the serenity is not all artifice. This sheet sheds light on a debate; it does not give investment advice.
The last word
Cliff Asness, once more, for the closing line: "Never have so many paid so much to so few for the privilege of being told so little." Private credit sells return and calm; it also sells, in the same gesture, the right not to know. And that right, one day, comes at a price.
Read alongside: The 'sidelined' cash that waits for nothing, the other case where market perception deceives about reality. Reference: abbreviations & acronyms (BDC, PIK, IMF, FSB).