Partners Group sounds alarm on private credit default rates
Chair of Swiss private capital group warns pace could double to above 5% in coming years
The chair of Partners Group has warned that private credit default rates could double in the next few years, with lenders exposed to the full downside of AI-driven economic upheaval and only limited upside.
Steffen Meister, whose firm manages $185bn across asset classes including private equity, debt, infrastructure and real estate, said annual defaults in private credit averaged 2.6 per cent over the past decade.
“There’s a good chance that we see default rates double in the next few years,” he said.
The comments from one of Europe’s largest private capital groups come as investors have rushed to pull money from US private credit funds.
Funds managed by Blackstone, BlackRock and Blue Owl have been hit by fears about credit quality and AI’s impact on software companies that make up a large share of private credit borrowers.
Private credit would be disproportionately affected by the AI-driven “economic transformation” relative to private equity, Meister said, because it would lead to a bifurcation of outcomes with more companies performing particularly well or badly.
“Credit has this issue that if a business does really well, your upside is capped, you just get your interest. Then you have the full downside — and this is where this becomes a problem.”
He added that default rates had been “so low” that private credit lenders had coped by managing diversified portfolios of loans that they then levered again.
“But that . . . will not quite work any more if you see more defaults, lower net spreads.”
Meister predicted that spreads would rise in the coming years in middle-market direct lending where there was limited capital available and said there was still room for strong credit returns with stringent “private equity-style” underwriting.
Private credit default rates have been materially lower than in public markets.
However, some in the industry argue they would be higher if the narrow definition of defaults typically used in private credit was expanded to match those in public markets.
In public markets, defaults tend to include events such as conversions of loans to payment-in-kind where interest rate payments can be deferred, or maturity extensions without adequate compensation.
The recent exodus from private credit funds was partly sparked by the failures of two US borrowers last year, Tricolor and First Brands, which raised questions about due diligence by lenders. That was compounded by rate cuts from the US Federal Reserve and more recently by writedowns at funds managed by KKR, Apollo and Blackstone.
Earlier this week, Partners Group reported SFr1.7bn ($2.18bn) in management fees, other revenues and operating income in 2025 and SFr819mn in performance fees. That was better than analysts had expected, as some exits of holdings were completed earlier than anticipated.