When the chair of a $185 billion private markets firm warns that default rates could double, it is worth paying attention. Steffen Meister, who leads Partners Group, one of Europe's largest private capital managers, told the Financial Times that annual defaults in private credit, which have averaged 2.6% over the past decade, could double in the next few years.1

His argument is not about one bad quarter or a handful of troubled borrowers. It is structural. Artificial intelligence, Meister believes, will create a bifurcation of outcomes across the corporate world: some companies will thrive, and others will fail dramatically. That divergence matters far more for lenders than it does for equity investors.

The Asymmetry Problem

The core of Meister's warning comes down to a simple asymmetry that sits at the heart of private credit. Private equity investors can profit from the AI winners. Private credit lenders cannot. Their upside is capped at the coupon they receive on their loans, but they are fully exposed when borrowers default.

This asymmetry was manageable when defaults were rare. Lenders built diversified portfolios of loans and then layered additional leverage on top, confident that a broad spread of borrowers would keep losses contained. But Meister argues that this strategy was built for a low default, low dispersion world that AI may now be dismantling.1

"Private credit would be disproportionately affected by AI driven economic disruption relative to private equity." Steffen Meister, Partners Group Chair, Financial Times.1

Asymmetric risk in credit: A lender's maximum return on a loan is the interest they are paid. Their maximum loss is the entire principal. When default rates are low, diversification and leverage amplify returns. When defaults rise, the same leverage amplifies losses, and there is no offsetting upside from the borrowers that succeed.

UBS Raises Its Alarm to 15%

Meister is not alone in sounding the alarm. UBS strategists led by Matthew Mish have raised their worst case private credit default projection from 13% to 15% in late February, just weeks after their initial report.2 The catalyst was what they described as rapid, severe AI disruption becoming a clearer and more imminent threat.

Asset ClassWorst Case Default Rate
Private Credit15%
Leveraged Loans10%
High Yield Bonds6%

UBS estimates that 35% of the $1.7 trillion private credit market is directly exposed to AI disruption risk through technology and services sectors.3 US high yield tech spreads have already widened by more than 90 basis points despite the broader index tightening, a signal that markets are pricing in sector specific stress.

Software: The Single Biggest Exposure

The concentration risk is hard to overstate. An estimated 40% of all sponsor backed private credit loans are tied to the software industry, making it the single largest sector concentration in the market.4

Private lenders were attracted to software's recurring revenue and high margins. AI now threatens to erode both as enterprises build cheaper, custom alternatives. The very qualities that made software an attractive borrower, sticky revenue and fat margins, are the ones most vulnerable to disruption from tools that allow companies to replace expensive subscriptions with internally built solutions.

JPMorgan has responded by marking down the value of software linked loans held as collateral in its financing facilities to private credit funds.5 The markdowns affect back leverage arrangements, where private credit funds borrow from banks using their loan portfolios as collateral. Lower valuations mean less borrowing capacity.

Data caveat: Default and loss figures for private credit are self-reported by fund managers and are not standardised across the industry. Comparisons between managers should be treated with caution.

Banks Pull Back the Funding

Wall Street banks have lent approximately $300 billion to private credit funds as of mid 2025, according to Moody's Ratings citing Federal Reserve data.6 JPMorgan is potentially the first major lender to pull in leverage to the private credit industry, in a move described as mirroring steps taken during Covid.

The bank's trading division reduced valuations on loans within the financing portfolios of private credit clients, effectively tightening credit at the institutional level. This creates a potential feedback loop: lower collateral values reduce borrowing capacity, which could force fund managers to sell assets, further depressing loan prices.

Five Firms, Four Weeks, One Pattern

The redemption wave is now hitting the largest names in the industry simultaneously.

FundRedemption Rate (Q1 2026)Outcome
BlackRock HPS ($26B)9.3%Capped payouts at $620M despite $1.2B in requests
Morgan Stanley North Haven11%Fulfilled only 45.8% of investor tender requests
Cliffwater ($33B)14%Limited redemptions to 7% of shares

BlackRock's $26 billion HPS fund breached its redemption threshold for the first time, capping payouts at $620 million despite $1.2 billion in requests.7 Morgan Stanley's North Haven fund fulfilled only 45.8% of investor tender requests, returning just $169 million.8 Cliffwater's $33 billion flagship vehicle limited redemptions to 7% of shares after investors sought to pull a record 14%.9

Morgan Stanley warned of a contraction in asset yields, uncertainty surrounding M&A recovery, and speculation on credit deterioration across the sector.8

Why This Matters

Partners Group manages $185 billion in assets and is one of the most respected voices in private markets. When its chair warns of doubling defaults, the industry listens.

Meister's asymmetry argument exposes a flaw in how the industry was built: lenders priced portfolios for a low default, low dispersion world that AI may be dismantling. The convergence of bank leverage withdrawal, rising defaults, retail panic, and AI disruption is creating the most severe stress test private credit has faced since the Global Financial Crisis.

Over $200 billion in outstanding private credit loans are tied to AI related companies according to the Bank for International Settlements, and that figure could triple by 2030.10 As Bob Michele, global head of fixed income at JPMorgan Asset Management, put it: leveraged debt markets can keep riding on the coattails of a healthy economy with no major blow ups, but the real concern is that private credit has not yet had a proper shake out.11

"Leveraged debt markets can keep riding on the coattails of a healthy economy with no major blow ups. What everyone's worried about is we haven't had a shake out." Bob Michele, Global Head of Fixed Income, JPMorgan Asset Management.11

Footnotes

  1. Steffen Meister, Chair, Partners Group, as reported by the Financial Times (opens in a new tab) via Reuters (opens in a new tab) and PitchBook (opens in a new tab). ↩ ↩2 ↩3

  2. Matthew Mish et al., UBS Group AG, via Bloomberg (opens in a new tab) and SWI swissinfo.ch (opens in a new tab). ↩

  3. UBS Group AG, AI disruption exposure research, February 2026, via SWI swissinfo.ch (opens in a new tab). ↩

  4. CNBC (opens in a new tab), reporting on software concentration in private credit, February 2026. ↩

  5. PYMNTS (opens in a new tab), reporting on JPMorgan software loan markdowns, via Bloomberg (opens in a new tab). ↩

  6. Moody's Ratings (opens in a new tab), citing Federal Reserve data, October 2025, via Bloomberg (opens in a new tab). ↩

  7. BNN Bloomberg (opens in a new tab), reporting on BlackRock HPS fund redemptions, March 2026. ↩

  8. Morgan Stanley Private Credit, investor letter, Q1 2026, via Reuters (opens in a new tab). ↩ ↩2

  9. Bloomberg (opens in a new tab), reporting on Cliffwater redemption caps, March 2026. ↩

  10. Bank for International Settlements (BIS) (opens in a new tab), private credit and AI exposure estimates, 2026. ↩

  11. Bob Michele, Global Head of Fixed Income, JPMorgan Asset Management, via Bloomberg TV (opens in a new tab), February 2026. ↩ ↩2