No fear of 'cockroaches'? Private credit funds raise billions as investors look past warnings

• Around 15% of private credit borrowers are no longer generating sufficient cash to fully service interest payments as high interest rates increase borrowing costs
• Private credit has evolved from a niche alternative into a multi-trillion-dollar market and core allocation for institutional investors as traditional banks retreat due to post-2008 regulatory constraints
• Asia's private credit market remains comparatively conservative with lower leverage and stronger covenants compared to the U.S. and Europe, where competition has driven looser lending structures

Summary: Private Credit Funds Continue Strong Fundraising Despite Risk Warnings

Private credit markets have sustained robust investor interest despite mounting concerns about lending standards and borrower stress. Recent high-profile fundraises demonstrate continued appetite for the asset class, with major firms surpassing their targets.

Key Fundraising Activity:

• TPG closed over $6 billion for its third Credit Solutions fund in December, doubling its predecessor's size and exceeding its $4.5 billion target
• Neuberger Berman's fifth flagship private debt fund reached final close at $7.3 billion in November
• KKR raised $2.5 billion for its Asia Credit Opportunities Fund II
• Granite Asia raised over $350 million for its pan-Asia private credit strategy, backed by Temasek and other sovereign investors

Warning Signals:

The September troubles at First Brands Group, a heavily leveraged auto-parts maker, sparked concerns about aggressive debt structures. JPMorgan CEO Jamie Dimon warned private credit risks were "hiding in plain sight," predicting "cockroaches" would emerge during economic downturns. Bridgewater's Ray Dalio also cautioned about vulnerabilities from higher interest rates.

Data shows approximately 15% of borrowers cannot fully service interest payments, with many operating on thin margins.

Market Drivers:

Structural factors continue supporting growth: banks have retreated from middle-market lending due to post-2008 regulatory constraints, creating opportunities for private credit firms. The market has evolved from niche alternative to core institutional allocation for pension funds, insurers, and endowments.

Regional Differences:

Asia's private credit market remains less saturated than U.S. and European markets, featuring lower leverage, stronger covenants, and more conservative structures, according to industry executives.

While JPMorgan initially raised alarms, the bank's 2026 outlook suggests recent defaults appear issuer-specific rather than systemic, with yield demand continuing to outpace supply.