Default rates are rising as businesses fail to refinance or repay their debts.

Mr Benjamin said: “Private equity is particularly vulnerable to this given its extensive use of leverage, and the illiquid nature of its investments.

“Some companies sponsored by private equity have turned to refinancing solutions which delay crystallisation of risks.

“That includes ‘amend and extend’ or ‘payment in kind’ agreements. While these agreements can help smooth through the stress, the risk is that the impact of higher rates is simply delayed, and an extension gives false comfort, increasing credit losses in the future.”

The rise of private credit in part reflects a move away from bank lending in the wake of the financial crisis. However, many banks have subsequently been swept up into the industry by funding parts of private equity – raising new risks as the financial system becomes more complicated.

Mr Benjamin said: “There are natural questions about the risks of these financing arrangements, and the growth in kinds and quantity of leverage, or ‘leverage on leverage’, throughout the ecosystem.

“And I cannot resist pointing out the ironic contradiction in banks, on the one hand worried about the threat from non-bank players, but on the other hand keen to help them leverage themselves up.”

But he conceded the system is opaque, which makes it hard for regulators to fully assess the risks or to identify what would happen in a new crunch.

He added: “To be honest, in the same way as there is a lack of transparency in valuations, more generally data about the impact of private equity on the corporate sector is scarce, and it is difficult to assemble the overall picture.”