By Felipe Berliner, co-founder and head of structuring at Gemcorp
On an earnings call last October, JP Morgan CEO Jamie Dimon offered a blunt assessment of fractures in US private credit: “When you see one cockroach, there are probably more.”
Unease has grown this year. Concentration in software and technology – sectors existentially threatened by AI disruption – has left many developed market loan books vulnerable. Meanwhile, payment-in-kind interest and maturity extensions are rising, suggesting low headline default rates are a mirage.
This is what “cockroach” dynamics look like in practice. In crowded markets, where capital is abundant and deals are intermediated through competitive processes, lenders have less control over terms. Pricing tightens, leverage rises and protections erode.
False diversification
Investors worried about US exposure are increasingly looking to Europe. The logic is obvious: different geography, different borrowers, different regulations. But the logic is misplaced.
See also: Morningstar: Private credit flows yet to show signs of trouble
Technology accounted for almost 40% of European direct lending transactions in 2025, with business services adding 23%. This means two-thirds of the market is concentrated in the same asset-light sectors generating anxiety across the Atlantic. Manager overlap is also significant, with many of the leading firms running similar strategies across both regions.
The macro backdrop is less supportive still, with the IMF estimating euro area GDP growth of just 1.3% in 2026.
From cockroaches to LIONS
If developed market private credit is increasingly correlated, there are still markets where capital is scarce and structuring remains disciplined, offering a fundamentally different set of return drivers. Emerging market private credit belongs in this category. A simple way to define it: LIONS.
Low leverage
In emerging markets, lenders dictate terms, which is reflected in key credit metrics. Analysis shows average leverage of around three times in emerging market transactions, against four to five times in the US, and interest coverage of 5.7 times against 1.5 times.
These differentials result from structural dynamics where borrowers have few alternatives and lenders can be selective. This also shows up in default data. S&P Global reports a 12-month trailing speculative-grade default rate of 1.2% in emerging markets, against 3.9% in the US and 3.2 % in Europe.
Income-generating
Emerging market loans support real economic activity: power generation, commodity exports, logistics networks, healthcare provision, water sanitation and education. Revenues are visible, income streams are often in hard-currency and returns come from contractual cashflows.
Yields can run in the mid to high teens – roughly 600 to 700 basis points above US direct lending – a premium that reflects capital scarcity and complexity.
Originated locally
The most compelling opportunities in emerging markets cannot be accessed from London or New York. They require a local presence, local relationships and cultural fluency.
See also: Why is private credit becoming so popular with fund selectors?
Originating at source typically enables sole-lender status, a feature disappearing from developed markets. Being sole creditor means retaining control in periods of stress, avoiding the coordination failures that hamper syndicated workouts, and maintaining relationships that can turn potential defaults into successful resolutions.
Non-correlated to developed market cycles
Emerging markets and developing economies are forecast to grow 4.2% in 2026, against 1.8% for advanced economies. Africa has the world’s youngest median age. Asia will overtake the US in data centre capacity by the end of the decade. Latin America holds some of the world’s largest lithium reserves, underpinning export economies with natural hard-currency revenue streams.
In short: the drivers of EM trade finance, infrastructure and corporate lending bear little relation to US or European sponsor-backed middle markets.
Secured
Developed market lenders are learning that ‘secured’ does not always mean safe. Overreliance on cyclical assets, poorly documented claims or collateral that proves illiquid under stress can turn apparent protection into an illusion.
In emerging markets, only borrowers that meet stringent requirements around transparency, collateral and cashflow attract capital. This converts risk from something to be wary of into something that can be priced and managed.
A broader lens
Emerging markets account for roughly half of global GDP but less than 10% of the global private credit universe. The gap is one of perception rather than reality.
At this point in the cycle, the distinction between crowded markets and capital-constrained ones is becoming more important. If cockroaches thrive where conditions allow risks to build unnoticed, LIONS exist where discipline, structure and selectivity are non-negotiable. For investors assessing private credit in a more challenging environment, that distinction could prove increasingly compelling.
