Private credit has, in the space of a decade, grown from a niche product into a $2.4 trillion asset class with a non-trivial role in the financing of the broader economy. Its first genuine credit cycle is now arriving.

The risks are uneven. The largest direct lenders — Ares, Blackstone, Blue Owl, Goldman Sachs Asset Management, HPS — generally underwrote on conservative terms, with strong covenant packages and meaningful unitranche structures.

The middle of the market is more concerning. A long tail of smaller managers, often raised on aggressive vintage assumptions and now facing meaningful payment-in-kind concentrations, is unlikely to navigate the cycle without losses.

The eventual outcome will not be a 2008-style systemic event. Private credit losses, when they crystallise, will be borne by long-duration capital structures specifically designed to absorb them — but the dispersion of returns will be considerably wider than the marketing decks of the past decade have suggested.