Private credit funds are not showing signs of a deterioration in credit quality or performance, despite growing concerns about potential defaults and disruption affecting the software industry, according to JP Morgan Asset Management.
Aaron Mulvihill, global alternatives strategist at JP Morgan Asset Management, acknowledged that some concerns raised in the media around bankruptcies, credit quality and the limited liquidity of semi-liquid funds are “undoubtedly valid”.
However, he warned there is “a widening gap between what the headlines convey and what the underlying data show in terms of actual returns and credit quality”.
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In February this year, investors began “collectively re-assessing software exposures in debt as well as equity portfolios”, following the threat to the software industry posed by artificial intelligence, which triggered a drop in the share prices of software companies.
“Private credit funds typically report quarterly, and the latest 4Q 2025 filings are not showing a significant deterioration in either credit quality or performance,” said Mulvihill. “The private credit default rate is approximately 2 per cent, consistent with recent years, and similar to high-yield bonds.”
In his latest investment note, What is the latest trend in private credit?, Mulvihill also pointed out that while some risk factors have been “trending upwards” since 2022, including payment-in-kind, as “rising interest rates pressured borrowers with higher interest payments”, in the past year “these metrics have not materially worsened”.
He also noted that “the resumption of rate cuts last year should have relieved some of the pressure on borrowers”.
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According to Mulvihill, the majority of the $2tn (£1.5tn) of private credit is held as “locked-up”, long-term capital by institutional investors and approximately $250bn of private credit now sits in semi-liquid funds owned predominantly by individual investors.
He pointed to a recent survey which showed that 51 per cent of institutional investors intend to increase their allocations to private credit, while 41 per cent plan to maintain them.
“Meanwhile, inflows to semi-liquid funds by individuals are continuing even as some investors look to pare back investments,” he said.
Mulvihill concluded that private credit remains compelling for long-term investors not in need of immediate liquidity.
“Credit quality issues and the potential for large-scale disruption of the software industry are not showing up in data today, but the potential for sector-specific challenges requires heightened diligence in manager selection and long-term portfolio planning,” Mulvihill added.
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