Author: Ignacio Teson

A recent report by Oxford Economics breaks down the similarities and differences between today’s U.S. private credit market and the one that preceded one of the last major global financial crises.

While the war in the Middle East continues to dominate global markets, another issue has been quietly unsettling some investors since the start of the year: large-scale withdrawals from funds managed by major private credit firms in the United States. Private credit refers to corporate lending that operates outside the traditional banking sector.

The market is estimated at roughly $1.8 trillion, a size comparable to the subprime mortgage market on the eve of the financial crisis in 2008.

In its latest report, Oxford Economics noted that the private credit sector “has faced considerable pressure in recent months,” highlighting a sharp rise in redemption requests from investors.

“Requests increased from about $1 billion in the first quarter of 2025 to roughly $14 billion in the first quarter of 2026, and redemption rates in several major private credit funds are close to 8%,” the report said.

In response, several prominent funds have imposed restrictions on investor withdrawals. Among the firms taking such measures are Morgan Stanley, Cliffwater, Apollo Global Management and Ares Management.

As a result, the average share price of major private credit funds has fallen about 30% since the start of 2026.

Rising delinquencies

Oxford analysts say the trend reflects genuine weaknesses in the private credit sector, noting that rapid expansion in any particular form of lending often leads to deteriorating credit quality.

They also warn that current methods used to measure delinquency may underestimate the scale of the problem. Official figures show a default rate of around 2.5%, up slightly from 1% in 2022.

However, these figures do not account for selective defaults, such as distressed debt exchanges, maturity extensions, or the replacement of cash interest payments with payment-in-kind structures—where interest is paid with additional debt rather than cash.

Subprime 2.0?

The comparison with the subprime mortgage crisis has not gone unnoticed among Oxford’s economists. One similarity they highlight is that both markets represented a relatively small share of total private debt.

Subprime mortgages tripled between 2000 and 2006 to roughly $1.5 trillion, but they accounted for only 4% of total private-sector debt in 2006, up from 2.2% at the start of the decade.

Private credit loans, by contrast, doubled to about $1.8 trillion between 2019 and 2025, yet they represent only 2.8% of total U.S. private-sector liabilities, while in Europe the share is just 1%.

Oxford also points to other “worrying similarities.” One is the loosening of credit standards.

Private credit was originally attractive because it promised higher credit quality in exchange for lower liquidity, but the report suggests that advantage has eroded in recent years.

Analysts also note the lag effect observed during the subprime crisis. Delinquency rates in subprime mortgages began rising in the third quarter of 2005 and had reached 11% by the first quarter of 2007. Yet default rates in conventional mortgages increased by only 0.3 percentage points during the same period.

“The crisis only became clearly visible in broader credit markets in the second or third quarter of 2007, between nine and twelve months after the initial deterioration in the subprime sector,” the report notes.

Key differences with the 2007–2008 crisis

Despite these parallels, Oxford Economics argues that a similar systemic crisis is unlikely.

One of the main reasons the subprime meltdown triggered such severe financial and economic repercussions was that private-sector debt levels had surged in the years leading up to the crisis.

In the United States, private debt increased by 50 percentage points of GDP between 1997 and 2008, including a 25-point rise between 2003 and 2008.

By contrast, no comparable surge in overall private debt has occurred in recent years.

In fact, the opposite has happened: the U.S. private-sector debt-to-GDP ratio has declined by about 15 percentage points since 2021.

Moreover, other credit segments show few signs of stress, and default rates within the banking system remain low.

Still, the report warns that “unpleasant spillovers” remain possible. While banks’ direct exposure to private credit stands at roughly $300 billion, their exposure to other nonbank financial institutions amounts to nearly $2 trillion and has been rising rapidly.