Private Credit’s Rocky Road: A New Look at the Shaky Growth

Private Credit in Turmoil: From Auto‑Parts to AI

In recent months, the private credit market has faced a series of shocks that reveal deep cracks in its foundation. The first blow came in September when two auto‑parts and auto‑lending firms, First Brands Group and Tricolor Holdings, both filed for bankruptcy. Their failures highlighted how much private lenders have bet on highly leveraged borrowers, especially in the automotive sector.

The next month, JPMorgan’s CEO Jamie Dimon warned that the industry’s loose lending habits could spread. His own bank suffered $170 million in losses when Tricolor defaulted, showing that even big institutions are not immune to risky bets. By December, prosecutors charged Tricolor’s top executives with years of fraud, accusing them of inflating collateral values to siphon billions from lenders and investors.

January 2026 added another layer of doubt when the founders of First Brands were charged with defrauding lenders before the company collapsed. The court had to approve short‑term funding from GM and Ford, underscoring how intertwined private credit is with larger corporate ecosystems.

In February, the focus shifted to the technology side of private credit. Many funds have heavily invested in enterprise software firms, a sector now under pressure from artificial intelligence tools that can cut costs and erode profits. Shares of major investors like Ares, KKR, Apollo, BlackRock, and Blue Owl dropped sharply. Blue Owl responded by freezing withdrawals from one of its retail funds, a move that sent shockwaves through the market and prompted hedge funds to launch tender offers for its shares.

Despite these challenges, the overall capital flow into private credit remains strong. Global fundraising in 2025 grew by 3.2 % compared to the previous year, and large asset managers continue to launch new funds. Analysts suggest that while the “easy” returns era may be ending, the industry is not collapsing. Instead, it is learning to balance risk, liquidity, and regulatory scrutiny.

The recent turmoil shows that private credit’s rapid expansion relied on aggressive underwriting and high leverage. Now, lenders must adapt to higher default rates, increased fraud investigations, and tighter redemption policies from retail investors. The industry’s future will depend on how well it can reform these practices while still attracting capital.