The Man Known as ‘Bond King’ Says Private Credit Could Cause ‘The Next Big Crisis’

A credit market veteran known as the “Bond King” has a warning for Wall Street.

“The next big crisis in the financial markets is going to be private credit,” said Jeffrey Gundlach, CEO of DoubleLine Capital, on an episode of Bloomberg’s Odd Lots podcast released Monday. “It has the same trappings as subprime mortgage repackaging had back in 2006,” he said. 

The U.S. private credit market—in which investors loan money to businesses in return for interest payments—has exploded in recent years, growing from $46 billion in 2000 to about $1 trillion in 2023. Morgan Stanley estimates the market was about $3 trillion at the start of 2025. Over the past 10 years, private credit’s risk-adjusted returns have significantly outpaced the rest of the bond market, according to Morgan Stanley. 

Concerns about the health of the market have been heard before. In September, two corporate bankruptcies wiped out billions of dollars from bank balance sheets and raised questions about non-bank lending standards.

“When you see one cockroach, there are probably more,” JPMorgan Chase CEO Jamie Dimon warned at the time. Months earlier, Dimon had cautioned that private credit’s risks—the opacity of its credit ratings, its leverage, its illiquidity—were a “recipe for a financial crisis.”

There’s no way to know when a private credit crisis will erupt, said Gundlach. “It’s impossible to be both right on the direction and correct on the timing” of financial trends, he said. He notes he became sceptical of mortgage lending in 2004, three years before the subprime crisis began. “So these things take forever, and it goes on much longer than you’d think.”

JPMorgan estimates that private credit accounts for less than 10% of corporate debt, a substantial share but which it believes insufficient to cause widespread economic damage. The firm also notes that the banking system’s direct exposure to private credit is small enough that private market distress “is unlikely to trigger a ripple effect that would destabilize the banking system and create systemic risk.”

Why Has Private Credit Grown So Much?

According to Gundlach, private credit’s outperformance and its low volatility have been the space’s main selling points. But, he argues, those benefits have been underpinned by the market’s opacity, not its fundamental strength. 

The recent bankruptcy of Renovo, a private equity owned home improvement contractor, is illustrative, he said. The value of investment firm BlackRock’s loan to Renovo dropped from $150 million to $0 when the company earlier this month filed for bankruptcy with just $50,000 in assets.

“It’s like there’s only two prices for private credit, it appears: 100 and zero,” said Gundlach.

Renovo’s debt, he said, should have been repriced well before it declared bankruptcy. But unlike public debt, which is regularly repriced because it’s actively traded, the holders of private debt don’t need to adjust prices, setting the stage for wipeouts.

The Renovo example also calls private credit’s outperformance into question, according to Gundlach. “Obviously, with bonds going from 100 to zero in a matter of weeks, the public market has been performing better than the private market,” he said.