Following the Private Credit Loan Books | Laks Ganapathi

Private credit faces significant systemic risks as the asset class transitions from institutional-only to retail-facing wealth management channels. Laks Ganapathi, founder of Unicus Research, highlights that widespread lack of due diligence and "extend and pretend" tactics are masking deteriorating loan quality across direct lending, commercial real estate, and auto loans. The sector’s reliance on opaque, incestuous structures—where private credit funds, insurance companies, and reinsurers are deeply interconnected—creates hidden vulnerabilities. Retail investors, often unaware of the illiquidity and credit risks involved, are increasingly used as exit liquidity for these assets. Furthermore, the rapid build-out of data center debt and software-heavy loan books, often marked at par despite underlying distress, suggests a looming correction as refinancing walls approach. These structural flaws, compounded by the use of payment-in-kind (PIK) and double-pledged collateral, threaten to trigger broader financial instability as market conditions tighten.