Private credit defaults at major US funds hit their highest levels since at least 2021, while heavy exposure to private equity and software raises fresh concerns about the $2.1 trillion global private debt market.
US private credit is showing signs of rising stress as loan defaults at several major private credit funds climb to their highest levels in at least five years, according to the latest report by Jefferies.
The investment bank said non-accrual rates at major private credit funds have increased sharply, pointing to growing pressure across the sector even though defaults remain relatively low by historical standards.
Non-accrual rates at Ares Capital, Blue Owl, Golub Capital and Blackstone Secured Lending Fund rose to 2.4 per cent, 2.8 per cent, 2.9 per cent and 3.6 per cent, respectively, in the second quarter of 2026. In comparison, the corresponding rates were 1.5 per cent, 1.4 per cent, 1.2 per cent and 0.3 per cent in the first quarter of 2025.
“Loan defaults at some of the major private credit funds have started to rise,” Jefferies said in its latest GREED & fear report, adding that levels have now reached their highest point since at least 2021.
Private credit exposure to private equity
Jefferies highlighted the close relationship between private credit and the private equity industry as one of the key risks for the market.
Around 70 per cent of private credit lending is estimated to be extended to private equity, meaning financial stress in leveraged buyouts could quickly spill over into private credit portfolios.
More from BusinessThe report said the private equity industry expanded significantly during the era of near-zero interest rates and was not sufficiently hedged against the subsequent increase in short-term borrowing costs.
Software sector adds to concerns
Jefferies also warned that artificial intelligence-driven disruption in the software industry could create additional risks for private credit lenders.
An estimated 20-25 per cent of the private credit market is exposed to software companies. Direct lending to software-as-a-service, or SaaS, businesses had reached around $538 billion by the end of 2025, representing about 19 per cent of total direct loans.
The rapid development of artificial intelligence has raised concerns about the ability of some software companies to maintain their competitive position, potentially increasing credit risks for lenders exposed to the sector.
Global private debt market expands
The warning comes after several years of rapid growth in private debt.
According to Jefferies, global private debt assets under management increased from around USD 0.9 trillion at the end of 2020 to approximately USD 2.1 trillion by the end of 2025.
The expansion has made private credit an increasingly important source of financing for companies and private equity-backed deals. However, the asset class is now facing the possibility of investor outflows as concerns over defaults, valuations and underlying borrowers grow.
Jefferies said the combination of rising defaults, heavy private equity exposure, higher interest rates and disruption in the software industry could become a key macroeconomic concern for the private credit market.
