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Jeffrey Gundlach Warns of 'Cracks' in America's Booming Private-Credit Market

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  Published in Business and Finance on Thursday, November 20th 2025 at 11:03 GMT by Fox Business

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Jeffrey Gundlach Warns of “Cracks” in America’s Booming Private‑Credit Market

In a recent Fox Business interview, bond‑market veteran Jeffrey Gundlach—Chief Investment Officer and CEO of DoubleLine Capital—cast a sober eye over what has become the country’s largest private‑credit market, now valued at roughly $5 – 6 trillion. He argued that, beneath the glittering growth numbers, a series of “cracks” are forming—liquidity gaps, quality concerns, and an under‑regulated environment that could bite investors and borrowers alike.

1. The Rise of Private Credit

Private credit has exploded in the past decade. While traditional bank loans shrink in the wake of Basel III tightening, a new wave of institutional investors—defined‑contribution plans, endowments, and sovereign wealth funds—has poured capital into loan‑based funds that lend directly to middle‑market companies. These funds are attractive because they often offer higher yields than public bonds and allow borrowers to sidestep the stricter covenants that bank‑lending requires.

According to Bloomberg data cited in the article, private‑credit assets grew from $2.6 trillion in 2013 to more than $5 trillion by 2023, with the sector outpacing the broader debt market. The growth has been driven by a confluence of low interest rates, a tightening credit environment for traditional lenders, and a shift toward “unconventional” debt vehicles—mezzanine loans, unitranche structures, and direct lending funds.

2. The “Cracks” in the Market

Gundlach’s concerns are multifaceted:

a. Liquidity Constraints

Private‑credit managers typically rely on short‑term funding—repo lines, commercial paper, and revolving credit facilities—to meet their leverage requirements. When the Federal Reserve raises rates, the cost of this funding can climb sharply. If rates continue to climb, a sizable portion of the $5 trillion market could face liquidity squeezes. Gundlach likened the situation to “a house of cards built on shaky foundations.”

b. Credit Quality Erosion

The sector’s appetite for higher yield has led to a loosening of underwriting standards. Many funds now target the “high‑yield” or “distressed” ends of the credit spectrum, which carry a higher probability of default. Gundlach noted that, while many private‑credit funds maintain stringent credit policies, the sheer volume of the market makes quality control difficult, and there are fewer public metrics to gauge the risk profile of each loan.

c. Limited Transparency

Unlike publicly traded bonds, private‑credit holdings are largely opaque. Investors receive periodic reports, but the details are often proprietary. Gundlach warned that this lack of transparency could hinder effective risk assessment, especially for investors who rely on public data to gauge portfolio quality.

d. Regulatory Gaps

Private‑credit funds are not subject to the same regulatory oversight as banks or publicly traded debt issuers. The article highlighted that the Securities and Exchange Commission (SEC) has only recently begun to tighten reporting requirements for certain private‑credit vehicles. Gundlach suggested that a more robust regulatory framework could help mitigate systemic risk.

e. Withdrawal Risk

The private‑credit market is not immune to “run” scenarios. If a major lender or fund fails to refinance its debt, it may be forced to liquidate assets quickly, potentially depressing prices. Gundlach referenced the 2023 “repo market” hiccup as a reminder that short‑term funding can dry up even in a seemingly healthy market.

3. Investor Takeaway

Gundlach’s message was clear: “Diversify and be mindful of hidden risks.” He urged investors to:

1. Perform rigorous due diligence on the underwriting standards of each fund.
2. Scrutinize liquidity provisions—look for evidence that the fund can roll over debt without resorting to fire‑sale pricing.
3. Assess the quality of collateral—especially if the fund is leveraged heavily on corporate debt that could be volatile.
4. Keep an eye on regulatory developments—the SEC’s forthcoming guidance on private‑credit disclosures could alter the risk landscape.

He also emphasized that private credit should be treated as a premium asset class: “It’s not the same as a 5‑year Treasury. You’re paying for risk and for a different risk profile.”

4. What the Broader Economy Looks Like

Private credit has played a key role in supporting growth for many mid‑size companies that struggled to secure bank financing. As such, any systemic failure could ripple through the broader economy, impacting supply chains, employment, and overall economic confidence.

The article referenced recent research that suggests a 70‑percent correlation between private‑credit losses and broader corporate default rates. If private‑credit defaults spike, they could amplify downturns, leading to a potential tightening of credit for small and medium enterprises (SMEs) and a slowdown in hiring.

5. Industry Response

Some private‑credit managers have already taken steps to address Gundlach’s concerns. The article noted that Blackstone’s Credit Fund announced a new liquidity buffer—a $200 million line of credit to cushion against short‑term funding shocks. Meanwhile, a handful of boutique funds have begun to publish more detailed risk metrics, in part to attract institutional capital.

In contrast, others have been slower to adapt, citing the cost of compliance and the competitive pressure to keep fees low. Gundlach’s skepticism thus highlights an industry at a crossroads: to either evolve with better risk management or risk becoming the next crisis driver.

6. Bottom Line

Jeffrey Gundlach’s warnings are a timely reminder that the private‑credit boom, while lucrative, is not without its perils. The $5 trillion market is still nascent in terms of regulatory oversight, standardization, and transparency. Investors, borrowers, and policymakers should remain vigilant, acknowledging that the “cracks” he speaks of could widen if the market’s underlying assumptions are not reevaluated.

As the article concludes, the private‑credit sector may well be at a tipping point. Whether it strengthens and matures or spirals into a liquidity crisis will depend on the actions taken today—by fund managers, regulators, and the investors who trust them.