Federal Reserve Chair Jerome Powell noted during a talk at Harvard University today that the turmoil the private credit sector has seen in recent weeks is not indicative of a broader risk to the financial system.

Powell added that the $3 trillion private credit industry is a “relatively small slice" of the asset pool and is something that the Fed is watching "super carefully," MSN reported.

"I’m reluctant to say anything that suggests we’re dismissive of the risk but we’re looking for connections to the banking system and things that might result in contagion. We don’t see that right now," he said. "What we see is a correction going on and certainly they’ll be people losing money and things like that, but it doesn’t seem to have the makings of a broader systemic event."

Regulators are "well aware of what the bank’s exposure is," Powell added. They are also "getting the back story from the people who run these organizations."

The private credit market has come under growing pressure in recent weeks. Rising rates, tighter liquidity, and a broader risk-off environment squeezed a corner of finance that had expanded rapidly. 

BlackRock Inc (NYSE:BLK) limited withdrawals from its $26 billion HPS Corporate Lending Fund after redemption requests surged to 9.3% of the fund's net asset value.

​​Oaktree Capital Management, for example, elected to fully satisfy all redemption requests. That represents 8.5% of its private credit fund for the first quarter. Oaktree Strategic Credit Fund (OSC) plans to repurchase approximately 13.9 million shares, representing 6.8% of its outstanding shares, Reuters reported. 

CNBC’s Jim Cramer took to X.com over the weekend to warn anyone with exposure to the private credit market.

“Unlike the housing/mortgage crisis in 2007-8, there is a solution to the private credit situation: take the hit. The vast majority of companies are solvent so sell them, take some losses,” he said. “Don’t get Dead!”

The key difference, Cramer contends, is that most of the companies sitting inside private credit portfolios are fundamentally healthy businesses. They're solvent and operational. Which means there is actually a path out — provided investors are willing to accept some losses on the way.

Photo: Shutterstock