With $2.1tn under management, the bond giant’s chief says investors must ‘constantly think about what can go wrong’ as private credit and other illiquid assets spread into the mainstream.

The chief executive of Pimco, Emmanuel “Manny” Roman, has delivered one of the starkest reality checks yet for the private‑markets boom. Speaking this week, the boss of the $2.1 trillion bond manager cautioned that investors should “constantly think about what can go wrong” and argued that “private markets in their current form haven’t been tested, and they will be tested when there’s a recession.” The remarks land after years of fast expansion in private credit, real estate funds and other illiquid strategies that promise steady yields and low measured volatility—but depend on confidence, patient capital and orderly exits.

Roman’s message is not that private assets are doomed. Pimco itself is a big player in alternatives and has ramped up financing for infrastructure and data‑center projects. Instead, he is throwing a bucket of cold water on the narrative that private vehicles are an all‑weather substitute for public markets. Since the global financial crisis, tighter banking rules, the search for yield and cheap leverage pushed companies to borrow outside the banking system. As rates rose from 2022 and public markets turned choppy, “private” became a widely sold solution—from buyout debt to specialty finance and NAV loans that allow sponsors to keep portfolio companies longer. That shift has left investors more exposed to assets that are hard to value quickly and can be even harder to sell when everyone heads for the exits at once.

The stress points are familiar to veterans of 2008 but have new twists. Valuations in private funds are updated infrequently and rely on models; that can smooth quarter‑to‑quarter swings but may also delay loss recognition. Liquidity is commonly “managed” via quarterly redemption caps or gates. Evergreen semi‑liquid funds promise periodic cash windows, but those work best when requests are spread out and capital inflows offset those seeking out. Add the rise of private‑credit exchange‑traded funds and other vehicles aimed at individual investors and the risk grows that a market built on illiquid loans is asked to provide daily or monthly liquidity. Central‑bank research has warned about that mismatch, noting that instruments which trade every day while holding assets that do not can amplify stress if sentiment turns.

Regulation is also in flux. In the United States, a federal appeals court last year vacated the Securities and Exchange Commission’s new Private Fund Adviser rule, shelving requirements that would have expanded fee and performance disclosure and curbed certain preferential terms. That decision pleased many managers and some limited partners but left a patchwork of oversight just as retail access is widening. In parallel, the Financial Stability Board and national regulators have been probing leverage and liquidity in non‑bank finance, including private credit. The common thread: supervisors see benefits to the growth of private markets but worry about the opacity that can make it hard to track risks across funds, lenders and their bank counterparties.

Roman’s warning arrives at a moment when private capital is financing ever‑larger real‑economy projects. In the most eye‑catching example of the summer, Meta selected Pimco to lead roughly $26 billion of a $29 billion package for a gigawatt‑scale data‑center build in Louisiana, with Blue Owl providing the equity piece, according to multiple reports. The debt is expected to be investment‑grade and secured against the project’s assets—an illustration of how private credit has moved from middle‑market corporate loans into infrastructure that underpins the artificial‑intelligence boom. For Pimco, these deals are a natural extension of its securitized‑credit roots. For the broader market, they underscore how concentrated underwriting and asset‑backed structures will be tested if growth stalls or energy and construction costs spike.

What would a recession test, exactly? First, underwriting standards. The past two years saw more “amend‑and‑extend” solutions that kick maturities down the road for borrowers facing higher interest costs. If cash flows falter, recoveries will depend on covenants and collateral quality. Second, liquidity management. Redemption queues at semi‑liquid products can lengthen quickly; secondary markets are deeper than a decade ago, but discounts widen when many sellers arrive at once. Third, valuations. If public comparables re‑rate lower, private marks tend to follow with a lag, compressing reported returns and reducing the ability of managers to raise new funds. Fourth, the complex plumbing that has grown around private markets—NAV lending to funds, repo lines to non‑banks, and bank financing to private‑credit lenders—could transmit shocks in unexpected ways.

Pimco’s own playbook reflects a preference for caution in this late‑cycle moment. The firm has said publicly it favors intermediate‑maturity, high‑quality bonds that offer attractive real yields after inflation, while keeping powder dry to add risk if credit spreads widen. On the private side it continues to pursue asset‑backed opportunities in areas like data centers and real‑estate credit but stresses structure over speed. Put differently: no chasing, tight covenants, and insistence on downside protections. That stance stands in contrast to parts of the market where competition for deals has squeezed lender protections and encouraged creative financing that works only in benign conditions.

Europe sits at a delicate crossroads. New rules such as the revamped ELTIF framework are drawing more capital from wealthy individuals into semi‑liquid funds marketed across the bloc, just as growth forecasts wobble and commercial real estate remains under pressure from higher rates. European banks are healthier than in the last crisis but are shrinking their balance‑sheet appetite for certain types of lending, which gives private funds room to grow. Roman’s point is that growth is not immunity: when economies slow, even senior‑secured private loans can face losses, and large‑cap infrastructure risks can be as cyclical as the tech demand they ultimately serve.

Investors, then, are left to do what Roman prescribes: think about the downside first. For pension schemes and insurers, that may mean mapping the cash‑flow profile of private holdings against benefit outflows and stress‑testing for delayed distributions. For wealth managers, it means explaining clearly that “semi‑liquid” is still illiquid when markets seize up, and building portfolios where public‑market bonds and cash can meet client withdrawals without fire‑selling private assets. For general partners, it means resisting the urge to stretch into low‑covenant loans at compressed spreads and ensuring that fund‑level leverage is a tool, not a crutch.

None of this diminishes the legitimate reasons investors embraced private markets. The capacity to craft bespoke financing, lean on collateral and work directly with borrowers has delivered consistent returns for many limited partners. It has also filled gaps left by retreating banks and funded economically useful projects that might otherwise stall. But the same features that make the asset class attractive—customization, opacity, infrequent pricing—are also why it has not really been through a modern, prolonged downturn with retail money involved. The next recession, whenever it comes, will be the first big audit of how well those promises hold up at scale.

Roman’s closing argument is a simple inversion of the sales pitch. Private markets can be powerful portfolio tools, he says, but they are not a substitute for public‑market discipline. Respect the cycle. Assume the exit will be hard. And, above all, constantly ask what could go wrong—before the test arrives.

Sources

• Financial Times, “Pimco chief signals caution over private markets,” Aug. 11, 2025.
• Reuters, “Meta selects Pimco, Blue Owl for $29bn data-center financing – Bloomberg,” Aug. 8, 2025.
• Bloomberg, “Meta Picks Pimco, Blue Owl for $29 Billion Data Center Deal,” Aug. 8, 2025.
• Bank for International Settlements, Bulletin No. 106, “Retail investors in private credit,” July 2025.
• U.S. Federal Reserve (FEDS Notes), “Bank Lending to Private Credit,” May 23, 2025.
• U.S. SEC, “Private Fund Advisers; Documentation… (notice of vacatur),” June 2025.
• Financial Stability Board, Annual Report 2024 (NBFI and leverage sections).
• Bloomberg, “Pimco Favors 5‑ to 10‑Year Bonds, Is Cautious on Private Credit,” June 10, 2025.