TOKYO, Mar 29 (News On Japan) - A growing private credit market tied to the AI boom is emerging as a hidden source of concern for investors, with commentators on TV Tokyo's financial program Morning Satellite warning that the risk may be receiving less attention than it deserves as markets focus instead on Middle East tensions and rising crude oil prices.
In the 139th installment of the explanatory segment Mosate Wakaran, which was recorded in front of a live audience for the first time with Morning Satellite Premium members in attendance, the discussion turned to private credit and the potential dangers building beneath the surface of the market.
Before getting into the main topic, the hosts noted the sharp decline in Nikkei average futures, which had fallen by more than 2,000 yen by the morning of the recording. They said the market was being pressured by two major concerns: the rise in crude oil prices linked to instability in the Middle East, and another less visible but potentially more dangerous issue, private credit.
One of the commentators said that while the rise in oil prices is an obvious problem because of its possible effects on inflation, monetary policy and the economic outlook, risks that are harder to see can sometimes be more frightening. He said that private credit was one such risk and argued that the subject deserved renewed attention amid the current market turmoil.
Recalling his experience as a trader during the global financial crisis, he said he had become particularly sensitive to hidden risks in the market. He noted that during the Lehman shock, daily drops of 8% to 10% in the Nikkei average were not unusual, and said that history had made him cautious about signs of financial instability.
He then introduced private credit as the first of two themes for the session, calling it a "fearful tail risk" and warning that although the term itself may sound abstract and difficult to grasp, the current state of the market should concern investors.
According to the discussion, the visible private credit market alone has expanded rapidly since 2020 and has now swelled to record levels. The speakers explained that the sector includes both capital already invested and waiting capital set aside for future investment. A major portion of this expansion, they said, has been driven by information technology.
Citing IMF data, they said information technology accounted for 41% of private credit activity over the past three years as of 2024, with the proportion possibly even higher now. Demand for funding surged first during the pandemic, when remote communication and digital systems became essential, and then continued to expand as the AI boom accelerated. The result, they said, was a sharp increase in financing demand from startups and other technology-related firms.
The hosts said AI-related demand was now spreading rapidly even among Japanese companies, with businesses increasingly rushing to adopt AI-powered services. That, they said, is one reason money has poured into the software and IT sectors, helping fuel the expansion of private credit. At the same time, they warned that if the AI bubble were to burst, the damage could spread directly into the private credit market.
The program then moved to explain what private credit actually is. In general, the term refers to loans made directly to unlisted companies by non-bank lenders, including investment funds and other financial institutions. Such lending is often structured through fund agreements and tends to involve low liquidity, meaning investors cannot easily withdraw their money.
Particular attention was given to BDCs, or business development companies. These are listed investment companies that provide financing to small and midsize businesses and venture firms. Unlike traditional private credit funds, BDCs are publicly traded, which makes them more accessible to individual investors.
That accessibility, the commentators said, is part of the problem. Because BDCs are listed and often offer dividend yields of around 10%, they may have attracted large numbers of retail investors around the world, especially during the height of enthusiasm surrounding AI-related investments. If those loans go bad, the risk would no longer be confined to professional investors or wealthy individuals but could spread far more widely.
The discussion also drew a distinction between private credit and venture capital. Venture capital typically involves equity investment, while private credit is debt financing. That means borrowers in the private credit market have a legal obligation to repay principal and interest. As a result, what matters most is not only the company's growth potential but whether it can actually repay the loan.
If borrowers fail, the commentators warned, the consequences could be severe. BDCs could suffer losses, their shareholders could be hit, and the damage could spread throughout the global investment community. In the worst case, they said, the problem could even affect broader financial stability.
They also argued that some observers may be underestimating the scale of the danger because only the visible part of the market is being measured. Even if the publicly tracked segment appears limited, they said, many other lenders and financing arrangements exist outside the most obvious data, meaning the full scale of the exposure may be far larger than it appears.
Another major concern raised during the program was that banks themselves are increasingly providing loans to private credit firms. Data cited from the Federal Reserve showed that such lending has grown sharply over the past five years, particularly since the pandemic and the rise of the AI boom.
That, the hosts said, creates the potential for a much broader chain reaction: if software and AI-related firms run into trouble, private credit loans could sour, BDCs and other lenders could suffer losses, investors could be dragged in, and banks themselves could face damage as well.
They said the issue should ordinarily be making much bigger headlines, and noted that it had indeed begun drawing more attention in late 2025 and around the start of this year. According to the program, one reason the issue was thrust further into the spotlight was the role of Anthropic, which they said helped bring renewed focus to the growing risks surrounding private credit.
Source: テレ東BIZ
