Private Credit: Risks, Resilience, and Opportunity

By Ryan Mollett, Managing Partner, Credit Solutions | Trevor Clark, Managing Partner, Middle Market Direct Lending | TJ Durkin, Managing Partner, Asset Based Finance | Gabe Lipton Galbraith, Vice President, Client and Capital Formation

“Progress is cumulative in science and engineering, but cyclical in finance,” as James Grant once observed. The current period of disruption in credit markets reflects that cycle at work, as investors navigate heightened uncertainty and change. While this moment is marked by real volatility, we believe it will ultimately lead to progress by strengthening the foundation and accelerating the maturation of the private credit ecosystem, benefiting those who’ve taken a risk-aware approach to portfolio construction, sector selection, and credit underwriting.

Importantly, what we’re experiencing today isn’t a conventional credit shock or a broad-based downturn driven by leverage or a sharp deterioration in corporate and economic fundamentals. Instead, we are living through a far more targeted dislocation, one in which profound technological innovation is prompting investors to reassess the long-term earnings power and terminal values of a specific subset of companies. The resulting volatility reflects a recalibration of valuations rather than systemic credit stress, with implications that are uneven across sectors, business models, and capital structures.

While the reset underway in credit markets is meaningful, we believe there is an incomplete understanding among some market participants of the nature of this moment and the lessons it presents. The market is being painted with far too broad a brush: while retail-oriented, regulated direct lending vehicles have grown rapidly in recent years, they still represent only a relatively small portion of the overall direct lending universe (See Exhibit 1). The vast majority of private company lending remains in institutionally oriented, private structures that are better aligned with the asset-liability profile of private credit and well-suited to the needs of borrowers and long-term capital.

Against this backdrop, we felt it would be useful to share our perspective on the questions we are hearing from our clients on recent market developments and the risks and opportunities across credit markets today. We do from our vantage point at TPG Credit, informed by extensive experience across credit sectors and cycles and grounded in what we see as important nuances, sources of resilience, and areas of opportunity in the current moment.

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