Brookfield’s Bruce Flatt says wider industry’s private credit woes aren’t a systemic problem

The head of Brookfield Corp. doesn’t think there is a systemic problem in the private credit sector, which has expanded rapidly but faces concerns due to its lack of transparency and increasing default rates.

“We do not … view today’s environment as a systemic problem, the area attracting the most attention represent only a very small part of the broader credit market,” Brookfield chief executive Bruce Flatt said in a letter to shareholders following the release of the company’s second-quarter results on Thursday. “What we are seeing is merely a healthy adjustment following a period in which abundant capital led underwriting standards to become too loose in parts of the market.”

Private credit, or lending by non-banks through privately negotiated deals, has proliferated in recent years.

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“Strong investor demand has allowed private credit to expand into larger loans and a wider set of borrowers,” the Bank of Canada said in a report in May.

But because many of the lenders are not publicly traded, they are not obligated to make regular disclosures. That gives regulators less visibility into where risks may be building and how losses could spread through the financial system.

“High‑profile bankruptcies of several U.S. firms financed by private credit have raised questions about underwriting standards,” the Bank of Canada said. “Growing links between private credit funds and banks could allow stress in the sector to spread to the broader financial system.”

Private credit lending to businesses in Canada remains limited, but the potential for spillovers through global markets and financial institutions reinforces the need for continued monitoring, the central bank said.

In July, Brookfield completed its acquisition of Oaktree Capital Management Inc., a U.S.-based investment firm that specialized in alternative investments, including private credit.

Flatt said in the letter that the risks in private credit have received a lot of attention, but that the concerns are mainly about loans given to private equity-backed borrowers and software businesses. Brookfield, he said, is focused more on hard assets such as real estate and infrastructure, in which it has decades of experience.