Executives at two major financial institutions on Thursday said the private credit market currently poses little systemic risk, but those risks will multiply as the market continues to grow and the economy eventually slows.
“As the amount of funding goes up, they have to find the loans to lend,” Daniel Pinto, president and COO of J.P. Morgan Chase, said of private credit funds at the Semafor World Economy Summit in Washington. “So most likely, credit conditions will deteriorate, confidence will deteriorate, margins will compress, and most likely they’re going to have to add more and more leverage. So as they become bigger, most likely they will become bigger and riskier.”
The private credit market now stands at $1.7 trillion and is set to grow to $2.8 trillion by 2028, according to data from Preqin.
Pinto said that because of its current size, the chances of the private credit market hurting the overall economic system is low — but that won’t be the case forever.
In a separate session during the conference, John Waldron, president and COO of the Goldman Sachs Group, said that in the event of a contracting credit cycle, underlying problems with the private credit market, like overleveraging issues, could be uncovered.
“We spend a lot of time worrying about it, looking about it, thinking about it,” he said. “There’s nothing we see inherently right now that’s particularly concerning, but I do think if there’s a credit cycle, we’re going to find things that are unappealing.”
There’s currently little oversight of private credit, but some lawmakers in Washington are pushing to change that.