Private credit has become one of the biggest growth stories in finance, but some industry leaders are signaling that the market may be approaching a more difficult phase.

Steffen Meister, chairman of Partners Group, said annual default rates in private credit could climb well above the roughly 2.6 percent average recorded over the past decade, potentially doubling in the years ahead. His comments add to a broader debate over whether stress in the roughly $1.7 trillion sector could spill into other parts of the economy if borrower performance weakens.

The concern is rooted in the structure of lending itself. Credit investors collect fixed returns when loans perform, but they remain exposed to significant losses when borrowers run into trouble. That risk may become more pronounced as outcomes diverge more sharply among companies. Meister linked part of that divergence to the rapid rise of generative AI, which is helping stronger businesses widen the gap over weaker peers. Middle-market companies, especially those with roughly $500 million to $1 billion in annual revenue, could be particularly exposed if defaults start rising across lender portfolios at the same time.

Although private credit has generally posted lower default rates than public debt markets, the comparison is not entirely straightforward. Public-market loans are often reworked through maturity extensions, restructurings or other adjustments that can mask the true level of stress, making side-by-side comparisons less clean than they may appear.

Investors are already showing signs of caution. Several large private credit funds have limited withdrawals after redemption requests exceeded the amount they were prepared to repurchase. Cliffwater’s $33 billion fund capped first-quarter withdrawals at 7 percent after investors requested redemptions equal to 14 percent of shares. Morgan Stanley’s North Haven Private Income Fund also imposed a 5 percent limit, satisfying only about half of what investors wanted to pull out.

Large asset managers are also moving to address valuation concerns and improve visibility. Apollo Global Management plans to provide more frequent net asset value reporting for its credit funds, ultimately aiming for daily updates supported by outside valuations. JPMorgan Chase has also marked down loans tied to software companies, suggesting lenders are becoming more careful about how they assess risk in certain sectors.

Not every fund has faced the same pressure. Blackstone’s BCRED increased its repurchase limit from 5 percent to 7 percent of outstanding shares, which allowed it to handle roughly $3.7 billion in redemption requests without restricting investors.

Taken together, the developments point to a market that is still growing, but no longer enjoying the same easy confidence that fueled its rapid rise. Caution from figures including Lloyd Blankfein, Jamie Dimon and Bruce Richards reinforces the idea that investors may be moving further into a riskier stage of the credit cycle as they continue searching for yield.