Private Credit Defaults May Double Due to AI

Steffen Meister, Chair of Swiss private equity firm Partners Group, has issued a stark warning regarding the private credit market. He anticipates that default rates could double in the coming years, primarily driven by the economic disruption anticipated from artificial intelligence. This AI-driven change is expected to create a distinct split in company outcomes, leading to more extreme successes and failures.

Concerns are intensifying within the $2 trillion private credit industry. Factors contributing to this anxiety include a noticeable decline in credit quality and the potential impact of AI on the business models of software companies, a sector where private credit lenders hold substantial exposure. Historically, annual defaults in private credit have averaged a low 2.6% over the past decade, but this stability may be challenged.