Whether Private Credit Blows Up or Not, Goldman Sachs and JPMorgan will collect their paycheck

Private credit: lending that happens outside the banking system. A private investment fund (run by firms like Apollo, Blackstone, or Ares) lends money directly to a company, using capital raised from investors like pension funds and insurers rather than customer deposits. Because it isn't backed by insured deposits, it isn't regulated or supervised the way bank lending is. It's grown from a niche corner of finance into a market managing roughly $1.8 trillion in well under a decade. How it differs from traditional banking is that if a fund loses money, the private investors absorb the loss, and not the ordinary bank depositor. 

Goldman Sachs is aiming to more than double its private credit portfolio, from roughly $130 billion today to $300 billion within five years, with Marc Nachmann, the firm's head of asset and wealth management, calling it "a huge opportunity." JPMorgan has committed $50 billion to direct lending of its own, chasing a private credit market some analysts project will grow to $3 trillion by 2028. Goldman and JPMorgan spent years watching private funds collect the fees they used to earn, but post-2008 regulations made it harder for banks to hold that risk. Now they’ve been wanting back in - just without taking on the balance-sheet risk that pushed them out in the first place.

Asked about the risks piling up in private credit of on JPMorgan's most recent earnings call (with increasing default rates reminiscent of a certain year between 2007 and 2009), the bank's CEO Jamie Dimon was pretty blunt: "It almost can't be systemic at that size relative to anything else. I'm not particularly worried about it." JPMorgan, he noted, carries around $50 billion of exposure to the sector, pocket change compared to the JPMorgan balance sheet. 

Despite saying all is well, JPMorgan's own trading desk has built a product that lets hedge funds bet the private credit market is heading for trouble. So has Goldman Sachs.

Both banks have been building basket indices: bundles of publicly traded companies with heavy private credit exposure - including business development companies and alternative asset managers - that let hedge funds take short positions against the sector. In plain terms, Goldman and JPMorgan built the tools for sophisticated investors to profit if private credit goes down, not just if it goes up.

Citigroup struck a $25 billion direct-lending program with Apollo, agreeing to help fund and originate loans that Apollo's funds will hold. JPMorgan and Goldman have gone a step further with Apollo, building a marketplace to resell private credit loans after they're made, helping the funds that hold these loans find other buyers, from big institutional investors down to everyday retail investors, willing to take them on instead. Every time a loan changes hands this way, the banks take a cut, the same way a real estate agent earns a commission on a house sale without ever owning the house itself. Get paid to arrange the loan, get paid again to help move it along to someone else, and let that someone else carry the risk if it goes bad.

Why would they do these things if everything's calm? Because the market has real cracks. The default rate on private credit loans reached 5.8% over the twelve months through January 2026, the highest level since anyone started tracking it, and well above the 2-3% figure the industry likes to cite. Roughly 40% of private credit borrowers now have negative free cash flow. A growing share of struggling borrowers aren't defaulting outright — they're using "payment-in-kind" arrangements, tacking unpaid interest onto the loan balance instead of paying cash, which keeps a loan looking current on paper while quietly making the eventual problem bigger. And demand for those short products has reportedly been driven in part by a specific worry: that private lenders are overexposed to software companies, precisely the businesses now facing disruption from artificial intelligence.

None of this means private credit is doomed. It's entirely possible the market cools, absorbs its losses, and keeps growing for another decade. But Goldman and JPMorgan don't need to know how it turns out to come out ahead. They collect fees building the market up, through partnerships like the Apollo deals. And they collect fees on the products that let other people bet it falls apart. It's not really a wager on private credit's future at all - it's a wager-proof position on either outcome, which is exactly the kind of arrangement that tends to work out best for the house.