From the floor of the New York Stock Exchange, I heard a stark warning about private credit. Jamie Dimon called it a market of “cockroaches,” suggesting hidden trouble ready to crawl out. As CEO of LifeGoal Wealth Advisors and both a CIMA and CFP, I see a different picture. The facts show a market that is pricing risk, managing exposures, and holding a strong place in the capital structure. This piece lays out why the panic misses what is actually happening.
“Private credit is full of cockroaches.”
The Four Reasons the Panic Misses the Mark
- Market performance says the thesis is wrong: Private credit has moved higher this year.
- Pricing is showing through redemptions and sales: Forced selling is repricing assets in real time.
- Software exposure is overblown: Two to four-year loan terms blunt AI shock risk.
- Capital structure protection matters: Senior secured loans sit at the top, with equity absorbing pain first.
View this post on Instagram
What the Market Is Actually Signaling
The cleanest check on any narrative is the tape. Prices reflect what investors with real money at stake believe about risk, recovery, and default paths. This year, private credit valuations have risen. That is not what you see when a market is cracking from within. It is what you see when credit losses are contained, coupons are being paid, and capital still values the income stream.
Private credit funds pay investors through interest and, at times, through modest price gains. If defaults were surging and recoveries collapsing, we would expect those values to deteriorate. We are not seeing that. That does not mean everything is perfect. It means the worst-case scenario being broadcast from big-bank pulpits does not align with actual outcomes.
As investors, we should always test our own views. I do it daily. The market’s current verdict is simple: the doomsday narrative about private credit does not align with the evidence on price and performance.
Yes, Private Credit Prices—And It’s Pricing Right Now
Critics argue that private credit does not truly “price” because it is not traded on an exchange on a minute-by-minute basis. That misses a key point. Pricing happens through actual transactions. And those transactions are occurring.
Here is the mechanism: in certain funds, investors have requested redemptions. Managers then need to raise cash. To raise cash, they sell loans. The sale of loans produces a market price. That is real pricing, not a theoretical mark.
Forced selling usually pushes prices lower, at least a bit. Yet we continue to see private credit moving higher overall. That suggests two things are true. First, there is meaningful demand on the buy side for these loans. Second, while some funds face outflows, the market as a whole is not buckling. If it were, we would see clear and consistent price drops across portfolios. We do not.
The takeaway: the claim that private credit is a black box with no price discovery does not hold. Managers are selling to meet redemptions. Buyers are purchasing with eyes open. The result is a functioning market that is digesting risk and still assigning value to senior secured income streams.
The Software Scare and Why Time Horizons Matter
Another loud worry is sector exposure. Many private credit portfolios include software borrowers. The bear case says AI will destroy software cash flows. That argument overlooks a basic fact about lending. Loan terms are short. In private credit, many loans mature in two to four years. Lenders care intensely about cash flow over that near-term window, not over decades.
Even amid rapid technological change, most software firms have sticky revenue, contracted customers, and recurring billing. Could their margins compress? Yes. Could some fail? Yes. But a total collapse in cash flows across the board within a two to four-year period is a stretch. Lenders’ structure deals with covenants, reporting requirements, and access to management. They monitor performance and can intervene early if stress appears.
The AI wave is real. I respect the speed of change. But lenders manage risk with diversification, documentation, and terms that anticipate bumps. Shorter maturities limit exposure to distant threats. If a borrower stumbles, lenders have a clear process to work out a solution or recover collateral. That is the point of senior secured lending.
Why Senior Secured Still Stands Tall
Private credit at its core is senior secured debt. It is first in line on collateral. It is paid before subordinated debt. It is paid long before equity. When a business faces trouble, equity absorbs losses first. Then junior debt. Senior secured debt is last to feel the hit.
Critics often lump private equity and private credit into the same risk bucket. They are not the same. Equity is the shock absorber. Credit sits above it, protected by security interests and claims. Even in stressed scenarios, senior lenders often recover a substantial portion of principal because they have liens on assets and tight legal rights.
That is not to say losses are impossible. They happen. But the cushion is meaningful. Private equity must go through “a whole lot of pain,” as I said on the floor, before it spills meaningfully into senior loans. For a lender, that protection is not a theory. It is built into capital structures, term sheets, and legal agreements.
What Investors Should Watch Next
Every market presents risk. Private credit is no different. But the right focus points are clear and measurable:
- Default trends and recoveries: Track how often borrowers miss payments and what lenders recoup.
- Loan-to-value discipline: Watch whether deals maintain prudent collateral coverage.
- Covenant quality: Check that lenders keep the right to step in early if metrics slip.
- Sector mix: Observe concentration and the balance between cyclical and recurring-revenue borrowers.
- Fund liquidity practices: Understand gates, redemption terms, and how managers handle outflows.
These details matter more than headlines. If defaults rise but recoveries stay healthy, senior lenders can still weather the cycle. If leverage stays reasonable and covenants remain strong, lenders keep control in tough moments. That is the real risk lens, not broad labels or sound bites.
How Redemptions Create Real-Time Signals
Redemptions are often painted as a crisis signal. Sometimes they are. But they also give us valuable real-time data. When redemptions force a sale, we see who steps in as buyers. If trades clear near book value, that supports valuations. If they clear well below, that is a red flag.
From what I am seeing, transactions continue to find buyers at levels that make sense. The market is functioning. Prices are adjusting. Income is being paid. And spreads continue to reflect risk without collapsing the structure. That is not what failure looks like. That is what a working credit market looks like.
A Calm View on Software and AI
Let us revisit software risk in practical terms. Many software borrowers benefit from multi-year contracts. Revenues repeat every month or quarter. Churn exists, but it often moves slowly. Even if AI reshapes the field, the effect on near-term cash flows is usually gradual rather than immediate.
Private lenders do not wait around. They monitor customer churn, pipeline health, and free cash flow. If a borrower flags on these metrics, lenders can tighten terms, require more reporting, or push for strategic changes. In extreme cases, they can move to protect collateral. The two to four-year term structure keeps the risk window tight and actionable.
Could a set of software-heavy portfolios face stress at the same time? It is possible. But that scenario would likely reflect a broader economic slowdown, not AI alone. Even then, senior secured status still matters most. Recovery prospects depend on collateral, contracts, and lender control. That is where private credit is built to perform.
Rethinking the “Cockroaches” Line
Sharp phrases like that make great headlines. They do not always make great analysis. The “cockroaches” comment implies hidden problems that no one can see. But we can see the core data points. Loans are being sold. Prices are clearing. Income is being paid. Senior liens are intact.
A better way to frame the concern is this: what would change my mind? A wave of defaults hitting senior secured loans at loss levels far above history would do it. So would widespread covenant-lite structures that leave lenders without control. Or a collapse in recoveries that signals collateral was overstated. I watch for those. So far, they are not the story of this year.
What This Means for Allocators
For financial planners, CIOs, and individual investors, the message is balance. Private credit is not a cure-all. But it also is not the hazard some make it out to be. Treat it as a credit allocation that sits above equity in the risk stack. Demand transparency on portfolio construction and liquidity terms. Focus on managers who keep discipline when capital is easy and when it is scarce.
The field rewards patience and scrutiny. Yield can tempt investors to overlook documentation or collateral quality. Resist that. Strong underwriting, diversified borrower bases, and consistent risk controls drive outcomes. Size the allocation to complement public credit and equity. And remember the purpose: stable income with strong protections, not an equity proxy.
Final Thought
I respect anyone raising real risk questions. That is part of a healthy market. But broad labels miss the details that actually protect investors. The evidence shows a market that is pricing and repricing when needed, and remains supported by senior secured status. Software risk is real, yet time frames and structures matter. And before senior lenders feel lasting damage, equity must take heavy losses first.
Take a breath. Review the facts. Private credit is acting as it should: senior loans with controls, cash flow, and collateral. That is far from an apocalypse. It is a market doing its job. For investors looking to add this asset class, here’s a deeper look at investing in private credit.
Frequently Asked Questions
Q: How does private credit differ from private equity risk?
Private credit sits higher in the capital stack and is usually secured by collateral. Private equity holds residual ownership and takes losses first. In stress, equity is hit well before senior lenders.
Q: Can private credit really “price” without a public exchange?
Yes. Pricing occurs through actual loan sales, especially when funds meet redemptions. Those transactions establish real market levels and provide ongoing valuation signals.
Q: Is AI a near-term threat to software-heavy loan portfolios?
It is a factor to monitor, but most loans mature in two to four years, and many software firms have recurring revenues. Lenders also use covenants to address issues early.
Image Credit: Arpan Parikh; Pexels
