Respected private equity investor J Christopher Flowers has issued a stark warning with regard to private credit investments by life insurers.

According to Flowers, the increase in such investments is creating a potential systemic risk. 

Assets managed by private credit investment funds have grown to a record $1.5 trillion, with annual growth more than doubling to 23 per cent between 2020 and 2022, according to JPMorgan

Speaking to the Financial Times, he said that said investors were underestimating the risks resulting from a flood of money into private credit loans and a push by insurers into these assets in search of higher investment yields. 

“Too many people have piled into private credit and it has a special feature that a chunk of it is funded with life insurance assets,” Flowers said. “One of these days, some life insurance company is going to get whacked on their private credit . . . You can have a run on a life insurance company.” 

He added that, over the past decade, many private equity-backed insurers have increased investment into private credit assets such as securitised products, private debts, and lower-rated loans:

“One of these days, some life insurance company is going to get whacked on their private credit . . . You can have a run on a life insurance company.”

Flowers said he was concerned about the overall growth of private credit assets, which are mostly managed in private and public investment funds, but thought a “systemic” issue or company blow-up would probably come from an insurer holding too much of this debt.