Is market panic about private credit overblown?

Point: Private credit funds are under pressure from higherborrowing costs and transparency concerns.

Counter-point: These funds’ conservative leverage and distinct capital structure provide a buffer that limits the risk of a systemic collapse. At least that’s what Amit Seru, senior fellow at the Hoover Institution and professor of finance at Stanford’s Graduate School of Business argues in a piece for the Financial Times. Seru’s core thesis is that the asset class isn’t what’s going to set off a 2008-style financial crisis.

Private credit funds’ conservatively structured leverage ratio and equity absorption cushion losses, Seru argues. Banking leverage is around 8-to-1, or roughly 12 cents of equity per USD of assets, while private credit has an average ratio of 1.25-to-1. Roughly 65-80 cents of every USD of assets is funded by equity rather than debt for funds that borrow from banks. This means losses are absorbed by long-term equity investors first, making funds more resilient in downturns.

This asset class also holds a strategic advantage by locking in investor capital for long durations. This structure aligns liabilities with the span of underlying loans and reduces the risk of forced liquidation. Meanwhile, banks fund long-term assets with short-term liabilities that can be withdrawn on demand, creating maturity mismatches and fueling financial crises.

Bank ties and investor withdrawals aren’t major threats

Concerns about bank linkages are also overstated: Private credit funds typically only use bank credit lines for short-term needs, such as managing the timing of capital calls, Seru notes. The Federal Reserve even modeled a severe stress scenario in which private credit funds face distress and fully draw down these lines — even then, major banks remain well capitalized.

Rising investor withdrawals are less of a distress sign than a financial safety measure. Investors have rushed to redeem their capital amid transparency and AI-related risks, pushing multiple firms to cap withdrawals and avoid selling illiquid loans at steep reductions. These measures don’t mean that the sector is facing a crisis, but rather a precaution designed to slash losses and protect valuable assets.

MARKETS THIS MORNING-

Asian markets hit record highs in early trading this morning, led by Japan’s Nikkei, which gained around 1.5%, and South Korea’s Kospi, which was up over 2.0%. US futures are set to open mixed later today, with futures swinging between gains and losses.

THE CLOSING BELL-

The EGX30 rose 0.1% at yesterday’s close on turnover of EGP 9.5 bn (33.4% above the 90-day average). Local investors were the sole net buyers. The index is up 25.3% YTD.

In the green: Raya Holding (+5.1%), Qalaa Holdings (+3.6%), and Abu Qir Fertilizers (+3.1%).

In the red: GB Corp (-2.5%), Heliopolis Housing (-2.4%), and Misr Cement (-2.3%).