The chief investment officer of one of the world's largest philanthropic foundations has warned that "accidents can happen at any time" in private credit due to lax lending standards and an influx of capital into the sector.

Nick Moakes of the £37.6bn Wellcome Trust told the Financial Times that large investors in such funds could suffer "if the US economy ends up in recession" "Very significant" loss.

"If the world economy gets more difficult, I think there could be some mishaps in the private credit world," Meaux said in an interview.

"If something goes wrong across the entire ecosystem, there are some pretty high-profile investors, many of whom do have some sort of systemic importance, who will be severely harmed," he added.

His comments came as ratings agency KBRA warned on Tuesday that private credit borrowers struggling to repay their debts could end up "in trouble" this year as higher-than-expected interest rates weigh on corporate balance sheets.

The firm, which analyzed a wide range of private credit markets, said that while most loans can be repaid successfully, borrowers whose "business models or capital structures have not adapted to a higher interest rate environment" may begin to default. .

After the 2008 financial crisis, private credit, which finances a wide range of areas including corporate acquisitions and consumer loans, grew rapidly as traditional banks pulled back from lending.

However, a growing number of central bankers, policymakers and some of Wall Street's top brass - including JPMorgan CEO Jamie Dimon - have pointed to potential problems.

Although private credit is systematically "less dangerous" than bank financing due to lower leverage levels, private equity managers are still able to borrow large amounts of money with minimal checks and balances, Mocks said.

"As (the private credit market) has become popular, it has absorbed a lot of capital. That means the lending standards that apply to some parts of the private credit market have been lowered," he said.

“This is great for private equity borrowers,” he said. But for investors, "if you see a slowdown, especially if the U.S. ends up in a recession, one day we're going to..." . There will be some losses (losses), and the losses may be substantial. "

KBRA expects default rates in private credit markets to jump to 3% by 2025 from 1.9% at the end of last year.

The forecast is driven in part by a rapid shift in markets since Donald Trump was elected the 47th U.S. president last November, with investors betting the Fed will no longer be able to cut interest rates as previously expected.

"Companies at the bottom of our credit assessment distribution may face liquidation in 2025 as the pace of expected rate cuts slows," KBRA analysts John Sage and William Cox said.

Meaux also highlighted the growing power and influence of large, U.S.-listed diversified alternative investment managers, and said their outsize growth may not benefit the fund's cornerstone investors.

“A series of very large asset managers have been formed and all the power is in their hands,” Mocks said.

"They're great businesses, they're going to have a private equity arm, they're going to have a private credit arm, they'll probably have a hedge fund arm and a real estate arm... (their funds) are lending to each other," he added. "It all kind of goes in a circle."

As alternative investment firms go public, they face greater pressure to increase assets under management to maximize management fees, which may not be in the best interest of generating investment performance, Mocks said.

"As the space attracts more and more capital, logically expected returns should decline," he said.

"The risk is rising. . . . You can build all kinds of catastrophic scenarios and have them knock each other out, but realistically, they won't because what they're doing is so smart. These things are put in LP (fund) vehicles . Therefore, the responsibility lies solely with the investors.”

The Wellcome Trust was established in 1936 following the death of pharmaceutical entrepreneur Henry Wellcome, and today its mission is to fund scientific research in the areas of mental health; infectious diseases; and climate and health.

It does not invest directly in private credit but has a window into the industry as about a third of its portfolio is allocated to private equity.

Meaux, who will retire from the Wellcome Trust at the end of March, was speaking as the trust reported results for the 12 months to September 30. The trust grew 15.6% in dollar terms but returned 5.2% in sterling terms. points because of the strength of the pound.

It also reported £1.6bn in charity spending on scientific research. Over the past 10 years, the company has earned 11.3 cents a year in sterling terms.