Private Credit: What It Is - and What’s Really Going Wrong Globally

Our CEO, Kevin Canning, recently shared his perspective on the Irish private credit landscape in the Business Post article, “It’s Turned Into a Monster: Private Credit Unravelling Causes Wobble in Irish Market.” The piece highlights the growing unease in global private credit markets and examines how Ireland’s situation differs from that picture.

As Kevin notes, understanding the recent turbulence requires returning to first principles - what private credit actually is, and how its structure can sometimes become its greatest vulnerability.

What Exactly Is Private Credit?

Private credit, often called direct lending or non-bank lending, refers to financing provided by investors rather than banks. Instead of depositors’ savings being transformed into loans (with banks earning a margin on the spread between deposit and lending rates), private credit funds allow investors to lend directly to borrowers and earn a return higher than bank deposits - typically through a managed fund structure.

This “disintermediation” has been one of private credit’s biggest successes. It offers borrowers faster, more flexible capital and gives investors access to yields uncorrelated with public markets. In Ireland, the segment has traditionally leaned toward real estate credit - funding residential, commercial, and development projects rather than the tech-heavy or venture-style deals seen elsewhere.

What’s Going Wrong Globally

While the long-term story of private credit remains strong, cracks have begun to appear internationally - particularly in the U.S. and parts of Europe.

Rising defaults: Defaults have increased, but they are mostly concentrated in sectors under stress, such as tech firms struggling with AI disruption or deals that were over-leveraged during the low-rate years.

Structural fragilities: Many private credit funds depend on sustained investor confidence. These funds often promise quarterly or annual liquidity but lend out money for three- to five-year terms. That mismatch works fine, until investors start redeeming faster than anticipated.

A “run on the fund” dynamic: Just as banks can face runs when depositors panic, funds can experience redemption requests exceeding their 5% liquidity limit. When that happens, they can’t easily sell loans tied up in multi-year facilities.

The outcome is a liquidity squeeze and markdowns in fund value to meet withdrawals.

For example, imagine a fund that has lent €100 million to mid-market borrowers with an average term of four years. If investors suddenly request €15 million in redemptions, the fund cannot liquidate such loans quickly. This structure works for closed-ended funds (where redemptions are not permitted). However, for listed funds, those redemptions occur through a fall in the traded unit price. That drop erodes confidence - and can spiral if sentiment deteriorates further.

Why the Irish Market Looks Different

Ireland’s private credit market remains relatively stable, largely because it’s grounded in real assets - particularly property debt - where valuations and recovery prospects are clearer. Domestic funds also tend to be smaller, more closely held, and less exposed to redemption pressures from large institutional allocators.

While vigilance remains essential, there’s little evidence of systemic weakness. In short, the issues observed elsewhere stem from scale and confidence - not from the fundamental viability of private credit itself.

It does, however, remain to be seen whether the Irish wealth management industry had significant client exposure to the affected funds.