The Gulf's Private Credit Blind Spot Is in the Building

Concerns are growing around private credit. Beyond the clickbait headlines, they raise a not-so-simple question: what is actually wrong with it?

If you're short on time, I'll make it short for you: opacity.

And as someone focused on information, data and real assets, I felt compelled to dive deeper.

Why This Isn't 2008, And Why That's Not the Whole Story

I know the first temptation is to jump to 2008. You are probably already there in your mind, and that's normal. "Securitisation", "hidden risk", "repackaged exposure", "shadow banking", "panic". Sounds familiar! But it is not that simple, and today's market cannot be compared mechanically to the pre-2008 securitisation machine.

As Andrea Correa argues in OMFIF, the analogy breaks down on maturity transformation. Before the crisis, securitised products were repeatedly repackaged and funded short term in money markets. Today's asset-based finance vehicles, still dominated by banks rather than private credit funds, mostly avoid that. And where private credit funds do offer liquidity, redemptions are typically capped at around 5%, a ceiling that did not exist in 2008 and one that blunts the risk of a disorderly run.

So no, this is not 2008. But the reassurance has limits. Correa's own caveat is about dry powder: roughly a third of the $2tn in direct-lending assets sits undeployed, often cited as a stabilising buffer, but unevenly distributed (and not guaranteed to be deployed when it is needed!). Managers may prefer to hoard it rather than prop up deteriorating borrowers, which pressures underwriting standards precisely when they should hold firm. And there is a separate limit on the liquidity side: in early 2026, several semi-liquid private credit funds reportedly received redemption requests above their stated withdrawal limits. Enforcing the gate helped manage liquidity, but the FSB has noted it may also have stimulated further redemption pressure rather than dampening it. A gate is not a firewall.

The Real Problem: Four Ways You Can't See the Risk

Still, private credit is under scrutiny for good reasons, and it helps to look at the numbers. The FSB estimates direct lending at $1.5tn to $2tn at end-2024, inside a broader universe Correa puts closer to $40tn. Large enough to matter, and the visibility around it is at least uneven if not opaque.

Ratings. Start with ratings. OMFIF notes that of roughly 8,000 ratings on these instruments, only around 1,000 came from the three major agencies. The other 7,000 came from specialised raters, some estimated to grade two to three notches more generously. If a "AAA" label does not mean the same thing across the market, investors are not only taking credit risk. They are taking interpretation risk.

Again, information, information and information!

Collateral. But that's not it. The bigger issue is collateral. In public markets you have prices, spreads, ratings and disclosures. In private credit, much of the story is negotiated privately. The loan may be secured, there may be covenants, there may be collateral. But can an outside investor, regulator or secondary buyer actually reconstruct the true risk? Often, the answer is no.

And collateral is not decoration. The ECB's AnaCredit study, drawn from the euro-area corporate credit registry, shows around 70% of corporate credit amounts are collateralised, and that secured loans carry 33% to 48% larger committed amounts and 10 to 18 basis points lower rates than comparable unsecured ones. More striking still: financial assets are pledged most frequently, but in value terms real estate dominates, at roughly 53% of total collateral value and 50-60% in most countries. And the link is measurable, a 1% rise in collateral value is associated with a 2.4 to 4.3bp fall in loan rates. When collateral value moves, credit conditions move with it.

So when we talk about opacity, we should not only ask what EBITDA is. We should ask what the collateral is, who valued it, at what date, against which facility, with what haircut, at what LTV, and what happens if rates stay higher or asset values fall.

Defaults. This is also why the default-rate debate is misleading, and the clean default number is the most quoted and most slippery figure in the whole discussion. Correa keeps outright defaults close to 1%, broadly comparable to high-yield and expected to deteriorate in line with it under stress. But the FSB draws the line differently: around 1% outright, and around 5% once selective defaults, the restructurings where a lender quietly helps a borrower avoid formal default, are included. Same market, same quarter, five times the stress depending on where you draw the line. If one definitional choice moves the headline metric that much, that is not a data point. It is the whole problem in miniature.

The stress hides in the same places: PIK interest (now around 12% of loans, up sharply since 2022), amend-and-extend deals, covenant waivers, private restructurings and stale valuations. And valuations are the third issue, they update quarterly, which is fine in calm and dangerous in stress, when deterioration in a private book is slower to surface than a public spread. The loss is still there. The signal is just delayed.

Rates. The fourth issue is rates, and here Correa adds a timing problem worth sitting with. Higher rates make floating-rate debt more expensive, weaken interest coverage and pressure asset values. Worse, a disproportionate share of the vehicles most exposed to the software and AI repricing now face a refinancing wall over the next two years, so rollover risk is concentrated exactly where credit quality is most in doubt. The question is no longer only whether a borrower defaults today, but whether it can refinance tomorrow, in the pocket of the market where tomorrow looks hardest. And it does not stay fully contained: OMFIF notes that, for some institutions, total exposure to non-banks can be as high as 600% of core capital.

Why the Gulf Is Different

Now bring this to the Gulf, because the regional picture is different. Global Finance notes SMEs are under 10% of GCC lending, against roughly 20% in developed markets, with a funding gap above $250bn. That is the opportunity! Private credit can serve companies banks do not. And the model here is less sponsor-led buyout and more direct lending to operating companies seeking growth capital. That can be healthy. But without a private-equity sponsor doing the first layer of diligence, the manager has to originate, underwrite and monitor directly. And when the borrower is real-asset-heavy, that diligence cannot stop at the income statement.

Here is the part that matters most for emerging markets. The problem is usually not that private credit invents opacity from nothing. It is that private credit enters markets where the information layer is still developing, especially around collateral and asset performance.

Consider what that looks like in practice. Take any listed market where, say, a third of the real-estate-linked exposure sits with issuers who confirm secured borrowing but disclose nothing at the facility level, no collateral value, no LTV, no maturity profile. In that market, the credit channel cannot be reconstructed from public information alone. Carrying value, pledged-asset wording and lender collateral value are three different things, and public filings rarely let an outsider bridge them. When you see that pattern in a market, you are looking at a measurement gap, not necessarily a credit problem, but a gap all the same.

Where the Signal Actually Lives: In the Building

A building can appear in the accounts, be pledged and support borrowing, and still leave the practical questions unanswered: which facility is it tied to, what value the lender assigned, what haircut applied, what LTV sits behind it, what capex it needs to hold that value. And then there is the physical layer, because if the collateral is real estate, the missing information is not only legal or financial. A building's credit relevance is shaped by its condition, cooling performance, humidity risk, energy use and maintenance quality. Two buildings can carry the same accounting value and have very different collateral profiles. In the Gulf, where cooling load, humidity and heat stress do real work on an asset, that gap is not marginal.

That is precisely the layer that usually goes unmeasured, and it becomes relevant at a few specific moments in the life of a loan. There are broadly three. Origination, when a lender is deciding what value to assign to a building it has never operated. Covenant monitoring, when the question is whether the asset is still performing the way it was underwritten. And the run-up to refinancing, when a higher-rate environment forces every NOI assumption to be defended rather than asserted. If Correa is right that the refinancing wall is arriving over the next couple of years, that third moment is not hypothetical, it is already on the calendar.

At each of those points, the useful input is not another carrying value on a spreadsheet. It is a measured answer to a narrow question, whether the building is actually performing the way the credit file quietly assumes.

It is one input, aimed at one gap, showing where operating costs are leaking, where capex has been deferred, where moisture or cooling problems are eating into the asset, so that NOI assumptions can be more honest and the uncertainty behind the loan narrower, at the exact moment someone is about to lend against it, monitor it or refinance it. That matters far more when rates are higher, refinancing is harder and lenders are more selective.

The Infrastructure Growth Requires

The Gulf private credit story is usually told as a growth opportunity, and fairly so. But that growth quietly assumes an infrastructure that is not fully built, legal and disclosure infrastructure, collateral and valuation infrastructure, and, wherever buildings are doing the securing, asset-performance infrastructure to go with it. A PwC study cited by Global Finance estimates that private credit in the Gulf and Egypt could reach $11bn to $20bn by 2030. If the market grows faster than that information layer, the same uncomfortable question keeps returning: can we actually see the risk we are taking?

In the Gulf, it is not an abstract macro worry, it is a market expanding into territory where risk sits inside private documents, private valuations and physical assets nobody measures often enough. In public markets, the signal is in the spread. In private credit, it is buried in the loan file. And when that loan is backed by a building sitting in the Gulf heat, the signal may well be in the building itself.

Sources

Andrea Correa, "The blind spots in private credit," OMFIF, July 2026. omfif.org/2026/07/the-blind-spots-in-private-credit

Financial Stability Board, "Report on Vulnerabilities in Private Credit," 6 May 2026. fsb.org/2026/05/report-on-vulnerabilities-in-private-credit

Hans Degryse, Olivier De Jonghe, Luc Laeven & Tong Zhao, "Collateral and credit," ECB Working Paper Series No 3095, 2025. ecb.europa.eu/pub/pdf/scpwps/ecb.wp3095~0e81ee7f34.en.pdf

"New Frontier in the Gulf," Global Finance, April 2026 (GCC private-credit growth estimate attributed to PwC). gfmag.com/private-credit/new-frontier-in-the-gulf