🪳 The “Cockroach” in Private Credit: Turning Unease into Vigilant Resilience
Private Markets Insights – November 2025
Dr. Oliver Heiland, Capital for Resilience Advisors
https://www.cfr-advisors.com/s/CFRA-PRIVATE-MARKET-INSIGHT-112025_The-Cockroach-in-Private-Credit.pdf
Photo credit: Photo credit: Erik Karits on Unsplash
In recent conversations with clients, colleagues, and at conferences, one theme stands out: unease about private credit.
I am currently working with two clients on establishing new private credit platforms. Though they operate in different geographies and sectors, they share a concern: will private credit product launches in 2026 be affected by the growing scrutiny of the asset class?
Similarly, a handful of limited partners (LPs) I have spoken with — across infrastructure, SME, midcap, and emerging-market strategies — express a mix of attention, unease, and outright worry: is something very unfortunate about to happen to my private credit investments?
In recent remarks, JPMorgan’s Jamie Dimon cautioned that when you see “one cockroach” in the financial markets, “there’s probably more” around (The Guardian). His metaphor captures a healthy instinct for spotting early warning signs of deeper vulnerabilities.At Capital for Resilience Advisors (CFRA), we believe two things are true:The surging growth of private credit warrants heightened awareness — not panic, but disciplined diligence.Preparation is the best friend of execution — especially for LPs that have grown fond of private credit in recent years.Now is a good moment for a system-check — including playbooks for managing defaults, stress events, and covenant breaches.
1. Why People Are Worried
System-level risks
The Financial Stability Board (FSB) recently issued detailed policy recommendations on leverage in non-bank financial intermediation (NBFI). When non-bank credit becomes leveraged and interconnected with regulated banks, it can amplify systemic stress.
The European Systemic Risk Board (ESRB) in its 2025 Non-Bank Financial Intermediation Risk Monitor warned that “leverage, liquidity mismatches, and interconnectedness remain key vulnerabilities.”
The International Monetary Fund (IMF) highlighted that non-bank lenders — especially private-credit funds — are growing fast, are less transparent, and may represent a weaker link in the global chain.
Investor-level concerns
Private-credit strategies sit outside the traditional banking perimeter, limiting standardized disclosure and supervisory visibility.
With interest rates higher and refinancing cycles tighter, underlying borrowers face greater stress — potentially exposing weaker structures to sudden deterioration.
The “cockroach” metaphor captures this concern: a visible failure could signal a network of hidden vulnerabilities.
In short: The expansion of private credit, coupled with limited transparency and potential contagion via bank linkages, warrants justified vigilance.
2. What We Know
Private credit has expanded rapidly as investors seek yield and banks retrench from balance-sheet lending.
The FSB finds that much NBFI leverage appears manageable but heterogeneity is significant.
The Federal Reserve notes bank exposures to private-credit vehicles remain modest and portfolios show high credit quality so far.
Many private-credit funds maintain robust underwriting standards — seniority, covenants, bespoke monitoring.
For borrowers, private credit provides valuable financing alternatives, supporting capital formation and economic resilience.
In short: Private credit is economically justified and strategically useful, but growth dynamics demand intentional oversight.
3. What We Don’t Know
True interconnectedness: fund-level leverage and cross-exposures remain opaque.
Stress behavior: recent vintages are untested in a deep credit cycle.
Hidden vulnerabilities: liquidity mismatches, weak covenants, and refinancing risk may be more widespread than data suggests.
Systemic data gaps: the FSB continues to highlight missing data on NBFI leverage and counterparty linkages.
Market reaction: forced liquidations and secondary-market repricing could amplify downturns.
In short: The unknowns outweigh the knowns — especially around tail events, opacity, and contagion channels.
4. What We Can Do
At CFRA, we believe the path from worry to vigilance begins with systematic preparedness.
Below are five core areas of diligence LPs should review:
1️⃣ Due Diligence from First Principles
Go beyond headline metrics: borrower cash flows, refinancing risk, structural protections, GP alignment.
Map out fund structures, waterfalls, and contingent liabilities.
Request stress-tests under recession and default scenarios.
2️⃣ Underwriting Standards and Documentation
Insist on meaningful covenants and seniority.
Assess refinancing and maturity profiles.
Identify liquidity mismatches between assets and liabilities.
3️⃣ Loan Administration and Monitoring
Establish ongoing borrower monitoring and covenant checks.
Track fund-level liquidity and collateral values.
Review triggers, amortisation schedules, and event-risk exposures.
4️⃣ Review of Structured / Layered Exposure
For funds-of-funds or securitised products, map waterfalls, subordination, and redemption mechanics.
Understand leverage sources and counterparty dependencies.
Conduct “what-if” analyses for liquidity and valuation shocks.
5️⃣ Governance, Alignment and Transparency
Confirm GP/LP alignment through co-investment and reporting.
Demand granular disclosures on portfolio composition and valuation.
Treat opacity itself as a red flag.
5. Three Practical Insights to Turn Worry into Vigilance
“If you see one cockroach, look behind the walls.”
Red flags are rarely isolated. Map sector and exposure overlaps.Build visibility where others don’t.
Transparency is the first line of defence. In opaque markets, information discipline is resilience.Favour alignment and calibration, not yield at all costs.
Yield should never outweigh underwriting discipline or liquidity control.
Closing Thoughts
Jamie Dimon’s “cockroach” analogy is not a call for alarm — it is a reminder to sharpen our antennae.
Private credit remains a vital component of diversified portfolios, offering strong return potential.
Yet its rapid growth and limited supervision demand active governance and continuous monitoring.
The difference between risk and fragility lies not in whether you invest, but in how you structure, monitor, and govern your exposure.
Private credit is not a “set-and-forget” asset class. Through disciplined due diligence, robust underwriting, and vigilant oversight, investors can position themselves not only for yield — but for resilience.
📄 Request the CFRA Private Credit Due Diligence Checklist
To receive the full five-pillar due diligence checklist for LPs, or to request the German-language version of this article, please contact:
References
Avalos, F., S. Doerr & G. Pinter (2025). The Global Drivers of Private Credit, BIS Quarterly Review, March 2025.
Financial Stability Board (2025). Leverage in Non-Bank Financial Intermediation: Final Report, July 2025.
European Systemic Risk Board (2025). Non-Bank Financial Intermediation Risk Monitor, September 2025.
Federal Reserve (2025). Bank Lending to Private Credit: Size, Characteristics and Financial Stability Implications, May 2025.
Jamie Dimon remarks as reported in The Guardian, October 2025.