Executives at two major financial institutions on April 18 said the private credit market currently poses little systemic risk, but those risks will multiply as the market continues to grow and the economy eventually slows.
“As the amount of funding goes up, they have to find the loans to lend,” Daniel Pinto, president and chief operating officer at J.P. Morgan Chase, said of private credit funds at the Semafor World Economy Summit in Washington. “So most likely, credit conditions will deteriorate, confidence will deteriorate, margins will compress, and most likely they’re going to have to add more and more leverage. So as they become bigger, most likely they will become bigger and riskier.”
The private credit market now stands at $1.7 trillion and is set to grow to $2.8 trillion by 2028, according to data from Preqin.
Pinto said because of its current size, the private credit market’s chances of hurting the overall economic system is low, but that won’t be the case forever.
In a separate session during the conference, John Waldron, president and chief operating officer of the Goldman Sachs Group, said in the event of a contracting credit cycle, underlying problems with the private credit market, like over-leveraging issues, could be uncovered.
“We spend a lot of time worrying about it, looking about it, thinking about it,” he said. “There’s nothing we see inherently right now that’s particularly concerning, but I do think if there’s a credit cycle, we’re going to find things that are unappealing.”
There’s currently little oversight of the private credit space, but some lawmakers in Washington are pushing to change that.
