Private credit needs its own "integrity comms check"

As avid followers of the recent Artemis space mission will know, the message “Houston, Integrity, comm check" was a critical communication milestone during last month’s mission, when the crew re-established contact with Mission Control after emerging from behind the Moon. Anyone who studies the daily dramas in private credit will surely recognise that the sector urgently needs an integrity and comms check of its own. 

Keeping up with the flurry of headlines on “the trouble with private credit” is becoming a full-time job for our private markets team - and it has very much been a team effort. The financial media has gone into overdrive with news, opinions, newsletters, podcasts and live webinars attempting to decipher what is going on in this still relatively new and not so well-known part of the financial system. To do so, they have also mobilised a significant number of senior reporters and commentators to monitor the unfolding situation from all possible angles and answer the questions of worried readers and retail investors.  

Participating in one such event, organised by a leading media brand and appropriately entitled “How worried should we be about private credit”, I was struck by the impressive senior lineup of respected journalists mobilised for a full hour - by all accounts, a very long time in a senior journalist’s busy day and a testament to both the priority the story has taken on the financial news agenda, as well as the complexity of the situation and its possible ramifications. The underlying message to the reader and investor is that the situation is serious.  

Interestingly, when asked to make a call on how serious the situation actually is, and what the broader systemic implications might be, senior journalists on various webinars readily admitted that they simply didn’t fully know yet and acknowledged a number of conflicting viewpoints coming from various sources. A remarkable display of humility and caution from a part of the media that still remembers being accused of “missing” the great financial crisis back in 2008. The word “untested” regularly popped up as an explanation for why no one was entirely sure of what might happen next. Many argued that this part of the private lending market in its current form was relatively new, particularly innovative, and more lightly regulated than the more traditional lending markets by design; as such, it was less well understood how it would react under a prolonged period of instability.  

The ultimate question here - beyond the losses that retail investors may suffer and whether they were sold an inappropriate investment product, because they did not understand it (a very big story in itself) - is whether the situation poses systemic risk to the entire financial system. As I finish writing this article whilst tracking the latestdevelopments of the story, Reuters posted “ECB sees private credit as risk to financial stability, de Guindos says”, whilst Bloomberg wrote “SEC monitoring ‘emerging pressures’ in private credit space”. Alarming headlines given trust is the foundation of the financial system and negative sentiment has serious real-life impact. It also signals the next stage of this developing reputation crisis.  

Which leads us to the role of media institutions and the active part they play in influencing sentiment and maintaining trust. Answering a question as to whether the media might be partly responsible for the recent loss of trust in the private credit industry, a senior journalist agreed that sentiment mattered and that contagion in financial markets could have very serious consequences. He went on to say that his team and his publication were acutely aware of that responsibility. Another senior journalist added that, interestingly, nobody complained of over-exposure whilst this nascent industry was being talked up by a bubble of private credit reporters “bigger than the private credit bubble itself”! A gentle reminder, if needed, of how a media cycle works and that even experienced journalists can go off message whilst under pressure.