Private credit’s reputation as an “unsafe” asset class is being driven more by headlines than fundamentals, according to a direct lending expert, who says the real risk emerging in private markets is the growing concentration of fundraising among a handful of mega-managers.
Kayne Anderson managing partner, Doug Goodwillie, said investor sentiment around private credit has been shaped by concerns over falling rates, credit failures and fears around artificial intelligence disrupting software businesses.
“We’ve seen the perception of rates coming down affect public BDCs in the US …. then we had the Jamie Dimon ‘cockroach’ quotes around some credit failures and underwriting failures, combined with the AI threat to software businesses. It’s been a very interesting time for private credit,” Goodwillie told Investor Daily.
“Certain investors may not fully understand private credit, it’s very hard for certain investors to understand the threat of AI and what that means in the near term and, frankly, the long term. I think that the press has created a narrative that private credit is unsafe, and I think that that is largely untrue.”
Goodwillie pointed to the rise of mega-scale private credit funds, with more than half of new capital now flowing into vehicles larger than US$5 billion ($6.9 billion).
“I agree with even many of our competitors that have software exposure, that AI is overblown, but I give that perspective on private credit to say that fundraising will be harder,” he said.
“I think it’s going to be harder to raise US$5 billion funds. I think that those in the upper-mid market will be more choosy with their capital. They’re going to be dealing potentially with some portfolio issues.”
At the same time, he said widening spreads could create better lending opportunities.
“A good environment to actually make loans, but it will be a tougher environment to raise capital, and a tougher environment, frankly, across the board.
“I think certainly felt in the evergreen retail vehicles that were attracting more high net worth and retail capital in the US, because of that structural mismatch between the liquid loans and gating the funds, for redemptions at 5 per cent the view from those investors that they can’t get their money out is going to make those evergreen vehicles in the US much harder to raise.”
The managing partner and co-head of private credit, who has more than 25 years of experience in the sector, said large Wall Street firms such as Blackstone have reshaped the market through their global fundraising scale.
“I think as some of the bigger Wall Street related firms came into private credit and realised the value proposition, two things happened: one, they have vast amounts of resources across the globe in terms of fundraising and capital formation.
“[Private credit] became more of a global asset class post GFC, over the last 15 years,” Goodwillie said.
“Some of those large, what I would call upper-mid-market firms that focus on lending to companies that have at least US$100 million EBITDA started to compete against the broadly syndicated market, both in the US and in Europe.”
He added that large retail-oriented structures such as private BDCs and interval funds opened the asset class to high-net-worth (HNW) and retail investors in the US.
“For example, a firm like Blackstone, it was number one on the list in 2025 – it has vehicles in the US$80 billion range. They tapped into a relatively new market in the US, which raised vast amount of capital for private credit and direct lending.”
While five managers – Apollo, Blackstone, Ares, KKR and The Carlyle Group – are currently capturing roughly two-thirds of fundraising flows, Goodwillie believes the market is approaching a turning point.
“I definitely think it will change. I started doing this in 1997 – there was a firm called Heller Financial in the 90s that had 50 per cent market share, but that was really because there weren’t all that many lenders. There were some banks and a few non-bank lenders in the 90s in private credit,” he told Investor Daily.
“I do think we’ll see a bit of a structural shift. I think the upper-mid market firms that had the capacity to raise capital across the globe, and then also launch retail-focused vehicles, kind of dominated the market for a few years. I don’t expect to see that continue in the way that it has.”
He said the largest managers would remain a permanent part of the market, but investors are increasingly looking beyond large retail vehicles.
“I think recent redemption issues and liquidity issues in the US, I think may slow the fundraise vehicles for some of the really large upper-mid market focused direct lenders.”
Private markets are expected to attract deeper interest from family offices, HNW investors and institutional allocators, particularly across the core and lower mid-market segments in the US and Europe.
Goodwillie said attention is increasingly shifting towards smaller companies generating between US$10 million and US$75 million in EBITDA, along with lower mid-market businesses producing around US$5 million to US$15 million in EBITDA, as investors seek opportunities beyond the larger end of the market.
The narrative in recent years has been that bigger companies have better covenants, but that is now changing, with investors learning through this cycle and potential dislocation that smaller companies may offer better structure.
The private credit market is also placing greater emphasis on conservative lending structures, particularly in the core mid-market. Tighter covenants, stronger loan documentation and more rigorous due diligence are increasingly distinguishing mid-market private credit from some of the looser lending structures seen higher up the market.
“There’s going to be a bit more scrutiny in terms of the investors, when they’re looking at managers. It’s not so much of a beta asset class anymore, I think there will be a strong differentiation amongst asset managers during this dislocation, and people will spend more time looking at different segments of the market and people that truly have a history versus just a Wall Street brand name.”
Institutional investors, he said, are increasingly differentiating between scale-driven strategies and more selective lending approaches.
“It’s not a beta asset class where a rising tide lifts all boats. It has been a low default rate environment. But I think in periods of dislocation, manager selection just becomes that much more important. I think that institutional investors truly get that, and those are the times when you really see the differentiation between asset managers.”
Globally, he said institutional investors now recognise the value in the core and lower mid-market.
“I think now there’s a recognition, certainly amongst institutional players globally, that there is a real value in the core mid market and lower mid market – but not the upper mid market.”
“There’s plenty of investors that have been doing this for decades, that are in the upper mid market, that we co-invest with and we respect. I think they’re viewing it more as an asset class and investing with managers within specific sectors of the asset class.”