This is a hot topic in our client meetings, although this is probably the wrong way to frame the discussion. Indeed, it should be: public and private.
There is room for both in investors’ strategic asset allocations, especially when it comes to larger institutional clients. The real question is: how large should your exposure to private credit be? Not too much is our short answer.
Exposure to private credit does make sense for the right type of investors, given their differentiated risk profile and time horizon, but there is no denying that stress has been mounting in that asset class.
Last week was a particularly bad week for private credit funds, after some news of fund gate-shutting by a large participant. This is likely to revive the cockroach narrative, in our view.
It is worth noting that public high yield, in contrast, seems relatively immune to similar headline risks. In fact, the fundamentals underpinning US yield have improved substantially over the past couple of years, with the share of BB credits as high as it has ever been in the HY index. This is mainly because of the exodus of the lower-rated names to private credit.
The default forecast numbers tell the story very clearly. According to Moody’s, the default in US HY bonds stood at 3.4% in January, a highly reassuring level.
In contrast, the default rate for leveraged loans stood at 5.5%, significantly higher. [1]
While there is no data available, defaults in private credit are likely to be even more elevated than for loans, so there is definitely a fundamental gap widening between public and private. To be clear, while private credit has grown substantially in size as an asset class, it is still far from having gained systemic risk status for the broader financial system. Right now, this may feel like a good thing.
[1] Sources: Moody’s. Default trends, January 2026 Default Report.
