By Mohith Sondhi, Managing Director of Debt Finance at OakNorth  

Last June, at SuperReturn International, the industry’s annual gathering for private equity and credit, the mood around private credit was bullish. Nearly every panel highlighted the relative strength and opportunity in private credit – a golden era, driven by high base rates, public market retreat, and strong LP appetite for yield. 

Today, the tone has shifted sharply. JPMorgan has been marking down the value of software loans sitting in the financing portfolios of private credit clients. Retail private credit funds are facing redemption pressures, with some managers restricting quarterly redemptions entirely. Default rate warnings are circulating. Fund manager stock prices have fallen significantly. 

So is private credit in crisis? My honest view: the correction is real, but the doom narrative is probably as overdone as the optimism was. 

Why the market got ahead of itself 

Private credit has grown at roughly 14% per year over the past decade. That kind of growth attracts capital – including capital from lenders who underestimated how complex credit actually is. 

Ironically, what made private credit attractive is also what made it exposed. High flexibility combined with high leverage leaves little room for error when a business underperforms. Unlike public debt, where positions can be traded, private credit sits in your book. When things go wrong, the lender faces a difficult choice: support the business through difficulty or take control. Neither option offers an easy solution. 

Currently, the sector is about 21% directly exposed to software, rising to roughly 40% when you include broader tech and business services – the highest concentration across extended credit markets. For years, SaaS recurring revenue looked like ideal collateral. AI disruption has changed that picture for a meaningful subset of those businesses, particularly tools that are seat-based, labour-scaled, and easily replaced.  

Too many lenders failed to make that distinction when deploying capital – and that failure is driving much of the stress we see today. 

The pessimism is also overdone 

The stress we are seeing today is real – but it’s concentrated, and not systemic. The headlines have overstated the damage. Look past the over-leveraged software books and covenant-lite structures, and you’ll see a large, functioning, and genuinely necessary market. 

Private credit exists because traditional banks, constrained by capital requirements and standardised credit processes, can’t serve every part of the economy. Businesses with complex financing needs – mid-market companies, funds, owner-managed businesses that don’t fit a standard template – still need lenders willing to understand them properly. That hasn’t changed. 

Not all private credit carries the same risk. Senior, asset-backed structures are a very different product from highly leveraged direct lending – but the market has not always treated them that way. The correction will force that distinction. 

What comes next 

I foresee documentation tightening with appropriate covenants being set and leverage being curtailed. The gap between managers who maintained credit discipline and those who prioritised volume is now widening – and will become increasingly visible as portfolios are marked and restructurings play out. 

For borrowers, the takeaway is simple: not all lenders are equally positioned when conditions get difficult. Who you bank with – their backing, their credit culture, their willingness to support you beyond the initial deal – matters more now than it did when capital was cheap and credit felt easy. 

Private credit and traditional banking both have important roles to play. The economy needs both, and the best outcomes happen when they work together sensibly. What is being corrected now is excess, not the underlying case for the asset class. 

Private credit was not as good as everyone said at the peak. It is not as bad as everyone says now. But it is growing up – and that is a good thing for the market as a whole.