From CNBC: 2024-05-24 09:53:00

The private credit industry is facing concerns about its ability to handle a downturn, with questions raised about the impact on borrowers in times of crisis. JPMorgan CEO Jamie Dimon highlighted potential risks, but Ares Management CEO Michael Arougheti defended the industry’s track record, citing a low loss rate over 30 years.

In January, the Federal Reserve analyzed default rates in private credit compared to traditional bank loans. KBRA DLD data showed private-credit loans have lower recovery rates upon default. As private credit grows, it becomes more intertwined with traditional banking, raising concerns about systemic risks in the event of an economic downturn. JPMorgan is already a major financier of private-credit portfolios and is increasing its capital deployment in this space.

Read more: Wall Street ponders what happens to booming private credit market when you-know-what hits the fan