The private credit market faces significant risks due to relaxed lending standards and the influx of capital, warns Nick Moakes of the Wellcome Trust. He anticipates substantial losses for investors if the U.S. economy enters a recession. 

While private credit is less systemically risky than traditional banking, diminished checks on borrowing have raised concerns. Rating agency KBRA projects defaults in the sector to rise to 3% by 2025, driven by higher interest rates and vulnerable business models. 

Moakes also criticized large alternative asset managers, noting their focus on asset growth may not align with investor interests. Despite the risks, the Wellcome Trust avoids direct private credit investments but monitors the market through its private equity allocations.

Finsum: With rates moves slowing down we think private credit could have an advantage over traditional fixed income products.