The private credit boom has created a financial system that increasingly resembles the mortgage market before the 2008 crisis.
Alternative asset managers have expanded lending outside the traditional banking sector, packaged those loans into securities and secured long-term funding through insurers and reinsurers. This model has helped private credit grow rapidly, but it has also created greater leverage, complexity and dependence on a continuous supply of capital.
If defaults rise and funding becomes harder to obtain, the system could stop functioning smoothly. Lenders may reduce new credit, borrowers may face refinancing pressure and losses could spread through securitised products, insurance balance sheets and the wider economy.
Private credit expanded partly because regulators tightened capital rules for commercial banks after the global financial crisis. Banks became less willing or less able to make certain loans, leaving asset managers to fill the gap. These non-bank lenders did not face the same capital requirements and increasingly used insurance businesses as stable funding sources.
That structure allowed asset managers to originate loans, package them into securities and move them off their balance sheets. The faster this process operates, the more income the system can generate. It also means that the model depends heavily on new funding remaining available.
Private loans can be divided into different levels of seniority, placed inside special-purpose entities and repackaged into further securities. Insurance companies, asset managers, banks and other lenders may all hold different claims on the same underlying businesses.
These arrangements can operate effectively when defaults are low and credit remains widely available. They become harder to manage when borrowers fail. Market participants may discover that they do not fully understand the ownership structure, the level of total debt or the priority of competing claims.
The collapse of Tricolor and First Brands is presented as an early warning. Both companies had exposure to lower-income consumers and were connected to complicated debt structures. Their failures may prove isolated, but they also show how hidden liabilities and weak consumer conditions can produce unexpected losses.
The more immediate pressure may come from the US consumer rather than artificial intelligence infrastructure. Large technology companies continue to support data centre investment, while political and economic incentives remain aligned with further development. The greater near-term concern is the financial position of households and consumer-facing businesses.
Credit rejection rates had already reached elevated levels by late 2025. Mortgage refinancing was becoming particularly difficult, including for homeowners outside the lowest income groups. Tighter credit conditions may be spreading beyond subprime borrowers.
Ruffer Investment Company Limited (LON:RICA) is a British investment company dedicated to investments in internationally listed or quoted equities or equity related securities
