UBS chair warns about bubble in private credit

UBS Chairman Colm Kelleher warned against growing risks in private credit as the market continues to boom.

“There is clearly an asset bubble going on in private credit,” Kelleher said at the FT Global Banking Summit in London Tuesday. “There are many other asset bubbles building. What it needs is just one thing to trigger a fiduciary crisis.”

Private credit has become an increasingly sought-after funding tool for buyout firms as banks have pulled back amid a spike in interest rates and a drop in investors' risk appetite. Some banks are concerned about this shift as underwriting these types of loans — and then selling them to other investors — is a strong source of revenue for them.

Kelleher is the latest top executive to warn about the rising risks. Pimco executives said earlier this month the market is under-regulated and lacks transparency.

Regulators have echoed similar concerns. Also speaking at the summit on Tuesday, European Central Bank supervisory board member Elizabeth McCaul said that nonbank lending, which includes private debt, is too opaque. Regulators should close supervisory “gaps” as the growing market could pose systemic risks, she added.

To be sure, many are more upbeat on the prospects for the asset class. Speaking to Bloomberg TV shortly after Kelleher’s comments, Ares Management Corp.’s co-head of European credit, Blair Jacobson, dismissed the suggestion. 

“There’s no bubble at all in private credit,” he said. “There’s a lot left to go for in the large-cap side.”

The private credit market has roughly tripled in size since 2015, growing to a $1.6 trillion industry that includes traditional direct lending to smaller companies and buyout financing, as well as real estate and infrastructure debt. Last week, private credit funds provided a record €4.5 billion ($4.9 billion) loan to back the buyout of Adevinta ASA.