The fragility we are starting to see in certain areas of global private credit is primarily a US, and partly a European, issue. It is unlikely to have a direct contagion effect on South African private credit, for a number of reasons.
First, domestic private credit markets are far smaller, simpler and more conservatively structured than US direct lending/business development company markets. Second, South Africa lacks the same concentration in highly-leveraged software borrowers, which remains a key area of vulnerability in US portfolios. Third, South African funds do not typically use the aggressive leverage, payment-in-kind structures, perpetual-life business development companies or private credit collateralised loan obligation-style structures currently under pressure globally. Finally, local fund managers are largely invested in plain-vanilla corporate credit, which has far lower systemic linkage.
Nor is stress in US private credit likely to evolve into a global systemic crisis. Across the world, corporate balance sheets are still broadly healthy. While US banks do have exposure to private credit funds via senior secured leverage lines, these lines of credit sit above the equity and mezzanine tranches – that means losses would have to be very large before US banks are impaired.
Other important features that would limit any potential fallout effects are that the first loss of credit defaults would be borne by private investors in the US, not banks; private credit vehicles are closed-ended (which reduces forced selling); and forecast default rates of 8%-10% would resemble Covid-era losses rather than the systemic failures in the 2008 global financial crisis.
Repricing risk
More broadly, what we are seeing is a repricing of risk in a tighter global liquidity environment, rather than the early stages of a systemic crisis. South Africa could experience second-order spillover effects, but these would come through global markets rather than domestic credit conditions. This would most likely show up through global risk-off sentiment, reflected in wider emerging-market credit spreads and investors seeking a higher risk premium from South Africa. It could also materialise through currency volatility, especially if oil prices stay high. South Africa’s relative liquidity among emerging markets makes it an easy funding source when global stress rises, particularly in periods of negative terms of trade.
The spillover could also materialise through equity de-ratings, in a broad de-risking phase, and through higher global funding costs, if high-yield/investment grade spreads repriced meaningfully.
The most important transmission channels to monitor are US public credit spreads – including high yield, leveraged loans and crossover indices – which tend to reflect changes in risk conditions most quickly.
Alongside this, oil prices and geopolitical developments remain key for South Africa, given their impact on inflation expectations, growth and the rand. More broadly, global recession risk is likely to have a greater influence on South African bonds and equities than private credit defaults themselves.
In summary, rising stress in US private credit does not translate into a domestic private credit crisis for South Africa. For local investors, the key is not private credit itself, but how changing global liquidity conditions transmit across portfolios.
This article is adapted from: https://stanlib.com/cms/insights-articles/unicorns-part-4-the-slow-unravelling.
Warren Buhai is a senior portfolio manager at STANLIB Asset Management.
About STANLIB Asset Management
STANLIB Asset Management is one of South Africa’s leading investment managers, with more than R600 billion in assets under management as of June 2025. As the institutional asset manager within the Standard Bank Group’s Investment & Asset Management business unit, STANLIB is focused on delivering consistent investment returns. To fulfil this fiduciary duty, it leverages progressive investment strategies and best-in-class, transparent partnerships, including its collaboration with J.P. Morgan Asset Management. This partnership provides clients with more access to global insights and forward-looking strategies.
STANLIB offers a core range of unit trust funds and manages a diverse array of bespoke institutional portfolios across various disciplines and asset classes, including fixed income, multi-asset, equity, and alternatives. Visit www.stanlib.com for more information.
STANLIB Asset Management (Pty) Ltd is an authorised financial services provider in terms of the FAIS Act.
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