The private credit trap you want to avoid

The private credit sector is under assault, including the 50 or so publicly traded companies within it.

I don’t think I’m being melodramatic in saying that when Jeffrey Gundlach – the highly influential “Bond King” and CEO of DoubleLine Capital – is making comments like:

And the even more notable Jamie Dimon, CEO of JPMorgan Chase (JPM), agrees, commenting that, “When you see one cockroach, there are probably more.”

Starting last fall, they’ve been attacking private credit relentlessly, with Gundlach even calling it “garbage lending” on Bloomberg in November. These sentiments have been widely reported by talking heads everywhere, with many (if not most) of them agreeing wholeheartedly.

There’s no two ways about it, they tell us: The private credit bubble could burst at any moment! Some would go so far as to argue it already has.

That’s why hordes of retail investors have been making redemption requests of associated institutions, wanting to sell their shares. They’re concerned these lenders will start seeing higher defaults and their lucrative income stream will dry up.

It hasn’t mattered how well the companies in question are actually doing. Anything tied to private credit – from business development companies (BDCs) to the asset managers that operate them – has suffered.

For proof, look no further than The VanEck BDC Income ETF (BIZD). It’s down 27% in the past year, or about 13% including dividends. And this in a bull market.

So is the worst yet to come? Or is this the buying opportunity of the decade?

The answer becomes much clearer once we look past the headlines to focus on a few simple data points.

As Wide Moat Research has stated repeatedly, the fundamentals matter most. That’s why we work so hard to dig past the drama to actual facts and figures.

We’ve found they have a way of paying off.

So do some of the most sophisticated and successful investors in the world, as you’ll soon learn.

Let’s start with Blackstone (BX), the world’s largest private credit manager with about $400 billion in related investments. And Ares Management (ARES) is right behind it in that regard.

Both are down about 30% in the past 12 months, while the S&P 500 has gained 16%.

Yet Blackstone’s Q1-26 SEC filing showed that Blackstone Credit & Insurance, or BXCI, saw enormous inflows from institutional investors. In fact, so many of these pensions, endowments, sovereign wealth funds, and the like wanted in that Blackstone had to turn some away.

Few things signal confidence more clearly than that.

Moreover, its Q2 filing came out yesterday, showing that inflows into private credit were $31 billion. In which case, there’s no slowdown in demand from institutional investors. Not one bit.

Instead, BXCI took in almost as much capital as the rest of the company combined. Fifty-four cents of every dollar Blackstone raised over the past year was from this category.

Then there’s Ares. Its Q2 filings won’t be published until next Friday, but its Q1 results say a lot.

Like Blackstone, it experienced record fundraising driven by – you guessed it – institutional demand for private credit. That in turn helped its quarterly management fees increase 22% year over year.

I don’t know about you, but I haven’t seen any headlines about these extraordinary results. Not a single one.

It would seem that if Jamie Dimon and Jeffrey Gundlach aren’t saying it, the financial press isn’t reporting on it… leaving you and your money in the dark.

I can’t say for sure why Dimon and Gundlach are so negative on private credit.

To be fair, it is true that some areas of private credit are seeing higher-than-normal defaults. The fears about artificial intelligence (AI) making some software companies obsolete – many of which have private credit loans – aren’t irrational. And, let’s face it, some lending institutions have been unwise in who they’ve lent to and by how much.

But there are also less charitable ways of understanding Dimon and Gundlach’s positions.

For one thing, private credit competes directly with DoubleLine’s bond business. And it’s taken a sizeable market share from megabanks like JPMorgan as well.

It’s also a little confusing how the latter recently admitted to $50 billion of its own investments in private credit as of early 2026. Its rationale for this seeming dichotomy is that those holdings are solid; it’s the rest of the market that’s compromised.

Similarly, one of DoubleLine’s specialties is in mortgage-backed securities… the same type of investment its CEO unfavorably compared private credit to.

Regardless, here’s what you need to know about the loan market: When uncertainty rises as it has, banks are quick to pull back on lending. And this gives private credit the chance to shine.

Since borrowers have fewer options to work with, skilled asset managers can charge higher interest and fees. At the same time, they reduce risk through tighter lending standards.

There’s a lot of money to be made under those conditions. That’s something the institutional investors pouring money into Blackstone and Ares’ private credit divisions get.

And it’s high time we do, too.

Knowing all of that, there are several timeless reminders for today’s private credit situation. The most important is undoubtedly that you need to do your due diligence first.

Don’t just react to someone saying something – no matter how important the “someone” or compelling the “something.” Dig into the details, and separate the wheat from chaff.

I spent the better part of 15 years as a due diligence officer evaluating institutional private credit offerings. I scrutinized their strategies, manager track records, portfolio construction, and loan covenants, as well as how bad deals were handled.

So trust me when I say that the successful ones never invest based on headlines.

They also don’t force money into frothy markets. They wait for volatility to create attractive openings in assets or areas they’ve already researched.

For instance, sophisticated institutional capital – known as smart money – bought into the 2008-2009 market trauma as well as 2020’s shocking drops. And in so doing, they made fortunes while reactive investors suffered.

If they have to wait years for a worthwhile buying opportunity to come up, then they wait years. Their focus is on long-term returns, not daily or even quarterly ebbs and flows.

They also prioritize diversification, knowing there’s no reason to put all their income eggs in a single basket. They seek out different companies in a variety of sectors so that, if something happens to one, the others can compensate for those troubles.

Once again, these are what the best private credit managers do. There are absolutely some with bad portfolios and poor track records. So – also once again – you need to do your due diligence.

If, like me, you see an opportunity here, make sure to be selective in where you invest. And recognize that you’ll need emotional, mental, and financial fortitude to wait out the continuing drama.

The headlines may keep screaming “Crisis!” for some time. In which case, most retail investors will keep reacting.

But since the data tells a different story, I’m just going to say it: Right now seems like one of the best times in years to allocate to private credit.

So with all due respect to Jamie Dimon and the “Bond King,” I’m investing in this opportunity.

Regards,

Stephen Hester
Chief Analyst, Wide Moat Research

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