Executive Summary
Private credit is growing rapidly, but transparency into borrower risk is not keeping pace. Private credit is a key early provider of funding to smaller innovative companies, but as a result investors need to tap new sources of data to support their decisions. Investors continue to allocate capital into private markets in search of yield, often with limited visibility into the true condition of underlying borrowers.
As portfolios become larger and more concentrated, many institutions are finding it harder to assess risk consistently, benchmark exposures objectively, and identify deterioration early enough to respond effectively.
Research commissioned by Credit Benchmark shows that more than 70% of institutions struggle to gain timely insight into private borrowers, while nearly half report difficulty quantifying risk and comparing exposures across portfolios.
In this environment, independent benchmarking, broader private company coverage, and earlier warning signals are becoming increasingly important to maintaining confidence in risk and return decisions.
When Risk Becomes Harder to Measure
What happens when the fastest-growing segment of credit markets is also the least transparent? Private credit is expected to approach $5 trillion by the end of the decade*. As lending shifts into private deals, the market is expanding in scale and complexity – but visibility into underlying borrower risk is not keeping pace.
At the same time, traditional market signals offer only a partial view. Credit spreads remain relatively contained, even as broader indicators point to a more nuanced shift in underlying credit conditions. This doesn’t signal immediate stress, but it does raise questions about how risk is being assessed and priced.
For many institutions, the challenge is not just changing fundamentals, it’s maintaining alignment between risk and return as portfolios grow larger, more concentrated, and increasingly weighted toward private assets. Risk is evolving faster than the tools used to monitor it.
At its core, this is a question of risk-reward alignment. When calibration holds, spreads, internal ratings, and probabilities of default move broadly in sync. When it weakens, mispricing can build gradually – often without clear early warning signals.
Recent research conducted by the market intelligence team at Mod Op** reinforces this shift. Risk teams are managing larger obligor volumes, expanding private market exposure, and operating under tighter timelines, yet the data informing decisions is often incomplete, slow to update, or overly reliant on internal models.
Taken together, these dynamics are creating a growing and largely hidden gap across both public and private markets. This gap is already shaping how risk is priced across portfolios.
*Morgan Stanley
**Credit Benchmark comissioned the research study in Q1 2026
The Private Visibility Gap
The most frequently cited challenge for senior risk and investment professionals surveyed is gaining timely insight into private and unrated entities. More than 70% of survey respondents identify visibility into private borrowers as a significant pain point. That means the vast majority of institutions in this space are making decisions about borrowers they can’t fully see.
The impact shows up across credit portfolios:
- Pricing decisions based on outdated financials and limited external benchmarks.
- Reliance on siloed models with limited visibility into broader market signals.
- Inconsistent comparability across counterparties and regions, hindering relative risk assessment and outlier detection.
In stable markets, these limitations can be absorbed. In volatile markets, they become costly – its real cost shows up in how institutions price risk and return. In today’s market, that misalignment is becoming harder to detect and more costly to ignore.
Pressure on Risk-Reward Alignment
Recent events highlight how quickly hidden risks can surface. The bankruptcies of auto-parts manufacturer First Brands and subprime lender Tricolor surprised investors who had previously marked these loans close to par. JPMorgan CEO Jamie Dimon warned that “cockroaches” rarely come one at a time – suggesting further issues may still be concealed.
These are not isolated incidents. They point to a broader structural issue: risk building quietly in opaque markets before becoming visible. That dynamic is reinforced by a persistent appetite for yield – capital continues to flow into credit even as risk becomes harder to observe, increasing the likelihood that returns no longer compensate for underlying exposure.
This incomplete view of borrower risk is directly affecting how institutions judge risk and return. Nearly half of respondents report difficulty quantifying the risk they are taking. A similar proportion say they struggle to benchmark their credit views objectively. Put simply, roughly half the institutions in this space are, by their own admission, pricing risk they can’t fully measure.
Weak early-warning signals further compound the issue. This is not a lack of data. It is a challenge of risk pricing discipline.
“External credit risk data acts as an objective benchmark to determine if returns are proportional to a borrower’s actual default probability.”
The relationship between spread and probability of loss remains the foundation of risk-adjusted return. When that relationship weakens, mispricing can accumulate across portfolios.
At the same time, redemption pressures at large managers such as Blue Owl have raised questions about liquidity and transparency in rapidly expanding private credit funds.
Together, these dynamics reinforce a core reality: risk in private markets often builds gradually, remaining hidden until it is suddenly repriced. The visibility gap is compounded by a speed problem – decisions are moving faster than the information supporting them.
Monitoring vs Market Speed
Operational strain compounds the issue. Half of survey respondents cite slow manual monitoring as a significant constraint on effectiveness.
At the same time, decision cycles continue to compress. Many institutions report making credit decisions within five business days or less, while monitoring 250 or more obligors — often far more.
Meanwhile, risk signals move at very different speeds.
Market indicators such as bond yields and CDS spreads react instantly to news and sentiment. Rating agencies typically move more slowly. Between these two sits another perspective: consensus fundamental assessments drawn from the credit views of market practitioners.
*What challenges does your organization face when managing credit risk or counterparty exposure?
*Please rate how significantly each challenge you selected impacts your team’s effectiveness. 1 is “very little impact”,
5 is “very significant impact”
Updated regularly, these signals are designed not to mirror short-term market volatility but to capture emerging shifts in underlying credit conditions across a broad contributor base.
This perspective can reveal turning points across sectors earlier and, importantly, provide visibility into private companies and counterparties that have no bonds, CDS pricing or public ratings.
The real risk is not being slower than spreads. It is relying solely on prices that can diverge from fundamentals for prolonged periods.
Without systematic, portfolio-wide monitoring, deterioration is often recognised only once it appears in spreads or rating actions — leading less to sudden default than to gradual mispricing and capital misallocation.
From Risk Management to Defensibility
Speed isn’t the only pressure mounting – governance expectations are raising the bar for what “good” risk management looks like. Governance expectations are reinforcing these pressures. Respondents cite increasing difficulty demonstrating model robustness and ensuring methodological transparency.
Credit judgement today must be more than internally consistent. It must also be defensible under challenge.
“It provides assurance that our risk/reward decisions are appropriately calibrated… and ultimately justifiable if challenged.”
The Confidence Challenge
Most institutions already operate multi-vendor credit data stacks. Roughly two-thirds of survey respondents report using two to three external providers, while others rely on four or more.
Yet more data has not eliminated blind spots. Instead, it has introduced fragmentation including divergent methodologies, inconsistent update frequencies, and siloed risk views across systems.
When asked what would materially improve performance, respondents consistently prioritise:
- Timely early-warning signals
- Independent, objective credit assessments
- Broader private and unrated coverage
- Transparency into methodology
The demand is not for more dashboards. It is for stronger benchmarks that help institutions maintain risk-reward alignment.
Restoring Confidence with Independent Intelligence
Risk decisions are stronger when informed by those actively taking risk.
What does a practical response look like? For a growing number of institutions, it starts with consensus-based intelligence – not as a replacement for internal models, but as a check against blind spots. Consensus-based credit intelligence provides one such benchmark.
By aggregating expert credit assessments across institutions, Credit Benchmark offers an independent reference point that complements internal models and traditional ratings.
This enables institutions to:
- Strengthen risk pricing discipline – Anchor pricing to independent benchmarks alongside internal models, addressing the ~50% of institutions struggling to quantify risk and ensuring spreads better reflect true default probability.
- Detect deterioration earlier – Implement systematic, forward-looking monitoring to close the gap cited by half of respondents, reducing reliance on lagging indicators and enabling earlier action.
- Benchmark risk positioning across portfolios – Use consistent external reference points to compare obligors and sectors, improving comparability and helping identify misaligned exposures across complex portfolios
The next cycle won’t reward access to capital. It will reward clarity on risk. The institutions that outperform will be the ones that detect deterioration earlier, benchmark more rigorously and restore risk-reward alignment faster as conditions change.
About Credit Benchmark
Founded in 2015, Credit Benchmark is a leading provider of consensus-based credit risk data and analytics, supporting long-term investment and risk decision-making for global asset owners and financial institutions. By aggregating and anonymizing credit risk views from more than 40 global banks, Credit Benchmark delivers obligor-level Credit Consensus Ratings and forward-looking metrics across over 120,000 legal entities, primarily unrated funds, private companies, and financial counterparties. Its insights help institutions strengthen internal credit frameworks, validate risk assumptions, and gain a clearer, more comparable view of exposures across complex global portfolios.
About Mod Op
By Mod Op is a leading insights-driven marketing agency that merges creativity, data science and artificial intelligence to deliver efficient, effective and sustainable growth for leading brands including Nestlé, Duracell, ExxonMobil, VTech® and LeapFrog®, DoubleVerify, and Baha Mar, and more. For both the B2C and B2B markets, Mod Op delivers strategy and execution across creative, communications, technology, and digital media, as well as other digital marketing services. For additional information, please visit modop.com.
To Learn More
By Credit Benchmark provides fresh, objective credit intelligence derived from the aggregated risk views of global banks — practitioners pricing, underwriting and managing exposure in real time.
To strengthen benchmarking, sharpen early-warning signals and ground decisions in data informed by market participants themselves, visit www.creditbenchmark.com.