When investors look at private credit headlines today, it is clear why questions are starting to build around the asset class. A few high-profile defaults have drawn significant attention. At the same time, concerns around AI disruption, especially in software, have added to the anxiety.

But in our view, those headlines do not tell the full story. What we are seeing is not a broad crisis across private credit. It is a much narrower issue: too much capital chasing deals at the largest end of the market.

In fact, despite some isolated problems, default rates have been broadly stable, and in some areas even improving. That has been supported by strong economic growth, resilient corporate earnings, and lower short-term rates, which have helped reduce debt-service pressure.

So the key question is not whether private credit still works. The more important question is: where is competition starting to change the balance of risk and return?

Capital has become much more concentrated in the largest part of the private credit market with just 12 funds have accounted for more than 40% of global private credit closed-end fundraising over the last 18 months.

That concentration has intensified competition in large-cap lending, where providers are competing not only with each other, but with the broadly syndicated loan market—resulting in tighter spreads, higher leverage, and looser underwriting standards as lenders compete for deal flow.

This dynamic has created a growing divide between the large-cap market and the less competitive lower middle market. We believe the effects are most evident in five areas — what we call the Five P’s:

Pricing, Portfolio composition, Protections, Prudence, and Payment-in-kind (PIK).

For investors today, the concerns surrounding private credit are best addressed not by avoiding the asset class, but by exercising greater selectivity within it.

Watch the video above to see how the Five P’s differ across the large-cap and middle market.

Access the full report, Crowding, not crisis: The private credit divide.

Read the brief on Private credit’s five pressure points.