The burgeoning private credit sector has played a significant role in driving the artificial intelligence boom, but its involvement might lead to considerable losses if the market experiences a downturn, according to a warning from the Financial Stability Board (FSB). This global watchdog, which oversees financial authorities like central banks in 24 countries, has released a new report highlighting the growing reliance of the healthcare, services, and tech sectors on private credit for financing. Notably, AI companies have increasingly sought funds from private lenders to build data centers and other essential infrastructure.
According to the report, AI-related ventures comprised over a third of private credit deals in 2025, a significant increase from 17% in the preceding five years. However, this concentration on specific industries could expose private credit funds to unique risks and make them vulnerable to localized economic disturbances. The FSB cautioned that a sudden revaluation of assets, which have seen rapid price hikes, could result in substantial losses for investors in private credit. A potential trigger for such a correction could be disruptions in the electricity supply, which is vital for the development and operation of data centers, potentially causing project delays or cancellations.
There is also concern that AI companies might face devaluation if massive investments result in an oversupply of data centers, surpassing the actual demand for AI technologies. This scenario could lead to returns that fall short of investor expectations. The FSB’s findings amplify existing worries about the risks associated with loans arranged by private credit firms, which operate outside the traditional banking system and rely on investor capital rather than customer deposits.
Despite the fact that proponents argue private credit lenders possess the expertise to manage risks effectively and offer tailored loan solutions, the FSB notes that borrowers in this sector often have lower credit ratings and higher debts compared to those who secure loans from conventional banks. Furthermore, traditional banks are not entirely insulated from the private credit sector’s risks. Many banks are directly lending to private credit funds, backing riskier fund portfolios, or engaging with companies that are also borrowing from private credit entities.
In some cases, banks are forming partnerships with asset managers to facilitate private credit transactions. Meanwhile, concerns over risky loans have already led to a significant withdrawal of funds from certain private credit investments, prompting some firms to impose limits on the amount clients can withdraw. This dynamic underscores the intricate and potentially precarious relationship between traditional banking institutions and the burgeoning private credit market.