Private Credit and the Myth of the Next Meltdown

Let's talk about this properly. Private credit, public credit.

Everyone is panicking about private credit risk. The headlines. The scare-mongering. "Bubble!" "Implosion!" "Just wait!" Blah blah blah.

Meanwhile… have you looked at public credit spreads lately? Skinny. Insanely tight. Paper-thin compensation for risk. If something breaks in the economy, a real systemic event, the order of pain is pretty simple:‍

1. Public equity gets smashed first. Sentiment turns. Liquidity evaporates. Prices can fall 20% in a fortnight. We've seen it before.‍

2. Then the banks feel it. They're leveraged to the economy. They rely on short-term confidence and long-term lending. When confidence goes, everything gets repriced.

And after those dominos fall, who exactly do we think steps in to keep credit flowing to the real economy? Private credit. Long-dated capital. Direct relationships. Security packages. Oversight. Not tradeable at the push of a button, and that's precisely the point.

The asset class with (arguably) better transparency to underlying cashflows, bespoke protections, and actual collateral… is the one people are screaming about.

Let's be real: risk doesn't disappear, it just changes shape. Public credit might feel safer because you can sell it instantly. But liquidity is a feature, not a guarantee of safety. When the tide goes out, as Buffett loves to remind us, we'll learn quickly who's been swimming naked. And who's holding senior secured debt with teeth.

And then there's the banks. There's a chorus that goes something like this:

"Why would you invest in sub-prime credit? If the banks won't touch it, why on earth would you? Private lenders must be scraping the bottom of the barrel!"

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Cute argument. But completely wrong. Here's the funny thing…

Banks are the ones funding the private lenders. They're providing the warehouse lines. They're lending against those loans. They're financing the credit that private markets originate So let's connect the dots.

If the loans were genuinely toxic… If the underwriting was reckless… If the structures were flimsy… Do we really think the banks, the most regulated institutions on earth, would be providing billions in financing behind it? Private credit is not a niche sideshow. It's not some dark corner of the market. It's become the primary engine of real-economy lending outside the public system. Housing. Healthcare. Logistics. Technology roll-outs. Small and mid-sized business growth. The stuff that keeps people employed and the lights on.

And it's a $2+ trillion global market and growing, because banks have been forced by regulation to step back. Private credit stepped in. Yet we're still hearing scare-stories from people who haven't touched a credit agreement since the GFC.

Here's the truth:

Public markets will be the first to bleed when things turn. Banks will wobble next. And who will still be there writing loans, restructuring debt, and working directly with borrowers to protect capital? Private lenders. Because when you have real security, real covenants, and real relationships, you don't panic. You negotiate. You enforce. You get paid. Risk doesn't vanish. It just demands to be understood.

And let's also talk about the noise. The commentary. The panic merchants. The "just you wait" brigade. All this fear. All this hand-wringing. All this noise… And nothing is even happening right now.

We're not in a crisis. We're not in a downturn. We're not in a credit event. Default rates are still low. Employment is still strong. Consumers are still spending. Yet the market chatter would have you believe the sky is falling.

So let's be honest… If this is the level of hysteria today, can you imagine the uproar if we actually hit a recession? If equity markets roll over? If liquidity dries up? If real credit stress emerges? Every headline would be written in capital letters. Every expert would pretend they saw it coming. Every investor who chased growth without guard rails would be looking for a place to hide.

Because here's the uncomfortable truth:

Risk is only obvious in hindsight. And courage is only rewarded in the clarity of future outcomes.

Right now, the loudest voices are yelling about the wrong thing. Private credit isn't the villain in the story. It's the lender with first dibs on the assets. It's the negotiator at the table. It's the capital with teeth. The system is calm, and some people are already losing their minds. Imagine when the music actually slows down.

Take the long view. Price risk properly. Own quality credit with real downside protections. Noise is not a risk factor. Panic is not a strategy. But positioning, that's everything.

I mean, let's take 2020 as an example. The world shut down. Public markets melted. Volatility exploded. It was chaos. Yet through all of it… the economy still had to function. Businesses still needed capital. Loans still needed to be rolled. People still needed credit to operate.

Who stepped in? Private credit. It didn't run. It didn't panic-sell. It leaned in. Because private lenders sit at the table. They negotiate directly with borrowers. They have collateral, covenants, and control.

Meanwhile, public markets were in freefall, equity markets down 30%+ in weeks. Bond spreads blowing out. Liquidity evaporating. And what did investors do? They fled public credit, those razor-thin yields you could trade at the push of a button, and moved capital into private credit.

Let me say that again:

In a crisis, capital didn't run away from private credit… it ran towards it.

Not because the world was perfect. But because private credit offered something better:

• Stronger protections

• Higher yields

• Direct control

• Actual access to cashflows

• Real alignment of interests

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When things go bad, investors don't want the illusion of safety. They want actual safety, backed by assets and enforceable rights.

So yes, risk exists everywhere. But let's stop pretending that risk begins and ends with private credit. The more honest truth is this:

When the system wobbles, private credit keeps the system functioning. It's the lifeblood. Quiet, essential, and deeply misunderstood.

And here's the other thing we all need to remember (I've written about this before):

Historically, the risk everyone is shouting about is almost never the one that blows everything up.

The market doesn't usually trip over the bright, obvious, well-lit obstacle. It's the thing in the shadows. The thing no one is modelling. The tail risk. The actual black swan.

2008 wasn't about the tech bubble. COVID wasn't about subprime. SVB wasn't about private credit. Time and time again, the explosions come from the blind spots, not the headlines.

So, if every commentator on the planet is warning about private credit… maybe that's not where the real bomb is hiding. Maybe the real risk is sitting somewhere quiet. Somewhere obvious in hindsight. Somewhere we're not obsessing over.

Meanwhile, private credit is being scrutinised, regulated, negotiated, structured, priced - daily.

Risk doesn't vanish. But it does migrate. And right now, it feels like a lot of people are chasing the wrong threat entirely.

Investing isn't about avoiding noise. It's about understanding where the actual fault lines are. And positioning yourself where capital has strength, protection, and recourse. The danger isn't the thing on the front page. It's the thing no one bothered to turn the page for.

And let's be clear about something else... All this due diligence… All this pursuit of transparency… All this regulatory involvement…

Isn't that exactly what we want? Isn't that the responsible thing to do before anything blows up? This isn't negligence. This isn't a free-for-all. This is the market maturing. Private credit has grown up. The capital is institutional. The underwriting is sophisticated. The structures are negotiated by people with battle scars from previous cycles.

And yes, regulators are paying attention. Good. That's their job. Scrutiny isn't a warning sign. Scrutiny is a strength. It's how you build resilience into a system before it's tested.

Let's not pretend public markets have some moral high ground here. ETF liquidity isn't a risk-management strategy. Price discovery on a screen doesn't replace real oversight.

In private credit, we don't just hope things go well. We build protections so that when things go wrong, capital is protected. And that's exactly what investors deserve.

Oh, and my favourite critique:

"Private credit managers are forced to put money to work! They'll chase riskier deals just to deploy capital!"

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Blah blah blah blah blah...

As if public markets don't do the exact same thing, but louder. Have you seen the relentless bid in equities lately? Millions, billions, flood into the stock market every day. And where does it go?

Into the same handful of companies. The same narrow set of names. Especially here in Australia, a tiny equity market concentrated in banks and miners. And what happens when too much capital chases too few assets? Prices get bid up. Valuations disconnect from fundamentals. Risk gets swept under the rug… until it can't be ignored anymore.

So let's be honest. Both public and private markets face deployment pressure. Both have concentration risks. Both carry the potential for mispricing.

The difference?

In public markets, price is a sentiment-driven number on a screen. In private credit, price is negotiated against collateral, cashflow, and control.

Of course there are risks in private credit. Of course there are risks in public markets.

This isn't a story of good versus bad risk. It's about where that risk sits… how it's structured… and who has a legally enforceable claim when the music stops.

Investing is not about avoiding risk, it's about understanding it. Pricing it. Positioning yourself intelligently. That's what sophisticated capital does.

And here's the part no one likes to say out loud:

You need to do your homework.

This is not, and has never been, about throwing an entire asset class into the bin. Not private credit. Not private equity. Not venture. Not public equity. Not anything.

Every asset class has a role. Every asset class has risk. Every asset class requires understanding.

The real work is this:

• Know what the strategy is actually doing with your capital

• Know how the returns are generated

• Know who is managing the risk when things go wrong

• Know why the opportunity exists in the first place

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Manager capability. Manager alignment. Manager experience. This is where the difference is made. Because not all funds are created equal.

Some chase headlines. Some chase yield. Some chase AUM. And some, the ones worth partnering with, chase disciplined, consistent, risk-managed returns guided by genuine expertise.

If you want to build wealth for the next quarter… flip a coin. If you want to build wealth for decades… do the work. That's the game.

And to be clear: this is not an argument for punting on concentrated corporate loans dressed up as private credit. There is private credit, and there is 'private credit'. What I advocate is a well-diversified, evidence-based, rules-driven, systematic portfolio allocation where high-quality private credit is one component of a broader, thoughtfully constructed, long-term strategy.

And then you've got the operators trying to reinvent physics. They want to take public market features - daily liquidity, instant redemption, rapid pricing, and bolt them onto private market assets.

Because that's what investors say they want:

"Give me private-market returns… but make it liquid."

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Sorry, that's not how this works. Let's me be brutally honest, and tell you what no one else is telling you... You're either liquid and not private or illiquid and private.

You don't get both. Trying to blend the two is a dangerous game. It looks clever. It sounds innovative. It sells beautifully. Until… the music stops. And when it does? That "liquidity" you thought you had? That redemption you thought was guaranteed? That neat little exit button?

Gone.

Because liquidity is not a feature of private assets, it's a promise someone made you. And in a stressed market, those promises break. Gates go up. Withdrawals get frozen. Investors learn the hard way what they really bought.

If you want private market returns, you must accept private market rules:

• Longer horizons

• Tighter underwriting

• Real collateral

• Actual control

• Less drama on a screen

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There's nothing wrong with illiquidity, when it's understood, priced, and respected. The danger comes when we pretend we've found a workaround. You haven't. And when stress hits, you will not get what you thought you paid for.

Take the long view. Understand the structure. Choose your risks intentionally.