A forgotten Wall Street dynasty sets the stage for a sharp, story-driven look at how private credit’s surge, market volatility and AI’s rise are reshaping lending, risk, and the people who do the work.
The profound transformation of the American economy during the Gilded Age is preserved in history with family names such as Morgan, Frick, Carnegie, Vanderbilt and Rockefeller. But the name of one of the most powerful New York financiers of the Gilded Age is largely forgotten: The Belmonts.
August Belmont Sr. was the son of a wealthy Prussian landowner who joined the banking house of the Rothschilds at Frankfurt am Main at age 14. His remarkable abilities won him a transfer to a more important post in the Rothschilds’ Naples office three years later. In 1837, he opened a small office on Wall Street where he served as American agent for the Rothschilds and laid the foundation for his own banking house, August Belmont & Company. Though he started with practically no capital, within a few years Belmont had built his firm into one of the most powerful banking houses in America.
From 1837 to 1842, August Belmont & Company experienced almost instantaneous success, serving as disbursing agent, dividend collector, and newsgatherer for the Rothschilds and their clients. The new financial powerhouse also invested in foreign currency markets and commercial loans and handled deposits. His European connections attracted private investment from corporations, railroads, and state and local governments. In the wake of the Panic of 1837, August Belmont Sr. was able to use Rothschild credit to buy up wildcat bank notes (the paper currencies issued by poorly capitalized state banks favored by President Andrew Jackson), securities, commodities, and property at severely depressed rates, sometimes as low as ten cents to the dollar. Using early modern securitization techniques, he was a pioneer on Wall Street, rapidly shifting money and commodities in complex international spirals of credit not seen before. Within three years of his arrival in the city, he had amassed a significant personal fortune, making him one of the most important private bankers in the United States. He was twenty-six years old. In his spare time, he was a thoroughbred racehorse breeder and the founder and namesake of The Belmont Stakes, the third leg of the Triple Crown of American Thoroughbred Horse racing.
As a young foreigner in New York, August Belmont Sr. had few initial avenues for social advancement. The existing Knickerbocker elite disapproved of his extravagant lifestyle and tastes. His social companions were largely young, rebellious men from well-to-do families. With these connections, he gradually began to introduce European cosmopolitan society to the United States. His early romantic life in New York City also drew controversy and opprobrium. In 1840, he unsuccessfully courted the ballerina Fanny Elssler during her sensational tour of the United States. Elssler’s reputation for promiscuity and her illegitimate child drew disapproval. In 1841, he was publicly accused of an affair with a married woman, and responded by challenging the accuser to a duel, in which Belmont was shot in the hip.
Through his marriage to Caroline Slidell Perry, the daughter of Commodore Matthew Perry, August Belmont Sr. became a fixture of New York’s high society, and in 1920, his lavish lifestyle reportedly inspired the character of Beaufort in Edith Wharton’s novel The Age of Innocence.
His son, August Belmont Jr., attended Harvard, and in 1874, while on the track team, he introduced spiked track shoes to the United States athletic world.
At the peak of his career in the 1890s and 1900s, August Belmont Jr. was a leading banker who helped bail out the U.S. Government when it was on the verge of default in 1895. As a sign of his prestige, he joined the Board of Directors of The Wright Corporation alongside luminaries such as Cornelius Vanderbilt to commercialize aircraft manufacturing.
August Belmont Jr. founded the Interborough Rapid Transit Company in 1902 to help finance the construction of and operate the first line of what today is the New York Subway. He served as President and, in 1907, Chairman of the company. He held the distinction of owning the world’s only private subway car, The Mineola.
He organized the Boston, Cape Cod & New York Canal Co, which oversaw the massive, two-year project to shorten the trip from New York to Boston by 62 miles and keep the shipping lanes away from the treacherous waters east of the Outer Cape. The grand opening of the Cape Cod Canal took place on July 29, 1914, and it was soon plagued with navigation problems due to the Atlantic Ocean tidal patterns. The Cape Cod Canal became a losing proposition, and the canal was purchased by the federal government in 1928.
During his career, August Belmont Jr. served on the boards of directors of ten banks and trust companies, nine industrial companies such as Westinghouse, eight railroads, The New York Athletic Club, and The American Kennel Club. If that wasn’t enough, he served as the first president of The Jockey Club, was chairman of The New York State Racing Commission and was one of the nine founding members of the National Steeple Chase Association.
Like his father, August Belmont Jr. was an avid thoroughbred horse racer and breeder. According to his Time Magazine obituary, August Belmont Jr. “is credited with having saved thoroughbred racing when it was at its lowest ebb in the East, after the repeal of the racing law in New York.” He was instrumental in revitalizing The Saratoga Racecourse in the early 1900s.
In 1905, William Collins Whitney and August Belmont Jr. built Belmont Park on Long Island, which operates to this day as the largest thoroughbred horse racing facility in the state. Belmont Park was not only unprecedented in its size but also had the then-new innovation of the Long Island Railroad extension from the Queens Village station.
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Fast forward to 2025.
Looking at the big picture, 2025 was noteworthy for two significant trends: firstly, the unprecedented growth in private credit, and secondly, the growing impact of AI in credit decision making, to say nothing of its impact on the professions serving the asset-based lender community.
Let’s start with private credit. 2025 saw economic and financial dislocation, including tariffs, regional bank stress and capital market volatility, which reinforced private credit’s value proposition of speed of close, structural flexibility, and certainty of terms.
Private credit offers some significant competitive advantages:
- Commitments in 48-72 hours versus 2-3 weeks for banks
- Closing in as soon as 30 days versus 60-90 days for syndicated deals
- 50-75 basis points of market flex
As they say, the proof is in the pudding. Private credit financed 86% of LBO transactions in 2024, up from 65% in 2021, as sponsors prioritized speed and certainty over marginal pricing differences up to 125 basis points. And many sponsor deals boasted leverage multiples up to 6.5x. Why the high leverage on sponsor deals? Lenders make the argument that sponsor deals have better financial controls and overall decision-making, on average, than a typical family-owned business. How about small-cap publicly traded companies?
Cannondale Bicycle is a sobering example of a small cap company whose poor decision-making was overlooked by the stock market. In the early 1990s, Cannondale Bicycle’s success earned its place in the pantheon of Harvard Business School cases studied by the college’s MBA students. In 1995, Cannondale did an IPO on NASDAQ. The high-water market capitalization for Cannondale in the late 1990s was approximately $250 million, based on annual sales of approximately $175 million with a gross margin close to 60%. The company had approximately $25 million in cash and little debt.
In 1998, on the advice of its investment bankers, Cannondale embarked on a product and market channel diversification strategy. The company decided to build off-road motorcycles and all-terrain vehicles from scratch, including the engines! With a union workforce in York, PA, no less!
Cannondale budgeted $20 million for this new product initiative in 1998. By 2002, the company had spent over $80 million. The cash was gone. The NASDAQ listing was gone. Cannondale reported a loss of $46.6 million for fiscal year 2002 after reporting 11 straight quarterly losses. Pegasus Partners II replaced Cerberus as the second lien lender behind CIT Business Credit.
By early January 2003, CIT wanted the company to file Chapter 11 with a 363 sale in first-day orders. Cannondale filed for Chapter 11 with $114 million in assets and $105 million in debts. Pegasus agreed in late January to serve as the stalking-horse bidder. The founders, once praised by Harvard, were wiped out in the process. With the benefit of hindsight, the guiding hand of private equity could have avoided this debacle.
One fear that keeps some borrowers up at night is the unwelcome intrusion of vulture funds in lending syndicates, who then trigger lender–on–lender violence. The large syndicated loan market is awash with lenders whose modus operandi to “insert then extract” — in schoolyard parlance, “put a stick into the spokes of the bicycle.”
Private credit can prevent this with tighter controls around:
- Debt incurrence capacity (baskets 25-50% smaller)
- Dividend and leakage provisions (more restrictive thresholds)
- Call protection (typically 103/102/101 versus 101/100.5/par)
These provisions reflect private credit’s buy-and-hold model versus some large banks’ originate-to-distribute approach.
Private debt funds raised $154 in the first nine months of 2025, according to Pitchbook. According to Blackstone, the $50-500 million EBITDA segment has become private credit’s exclusive domain. Moody’s projects private credit could tap $3 trillion in assets moving off bank balance sheets in the next five years.
Now, let’s bring some granularity to the discussion.
Jennifer Palmer, CEO of JPalmer Collective, looks back on the year. ”2025 has been defined by a level of unpredictability and volatility that touched nearly every corner of the finance industry. Conflicting macroeconomic signals, shifting policy decisions, and rapid AI-driven changes in the labor market combined to create sustained disruption. In that environment, private finance markets came under increased scrutiny, and the number of successful exits declined, forcing both operators and investors to rethink risk and timing.”
Palmer continues: “At the same time, the pace and scale of new tariff rollouts caught many companies off guard, with consumer-packaged goods absorbing a disproportionate share of the impact. Organizations were forced to pivot quickly — relocating manufacturing hubs, reassessing shipping and logistics costs, and developing alternative sourcing strategies in real time. As these changes unfolded, transparent communication with suppliers, retailers, partners, and customers became non-negotiable. Agility paired with honesty proved to be the most effective way to manage disruption while preserving trust.”
Jim Clifton, Chief Commercial Officer, Great Rock Capital notes: “Cracks appear to be showing in the private credit space and for the regional banks as a result of significant capital oversupply being deployed against minimal demand for loans. Competitive pressures will continue to grow in 2026, driven by the influx of new direct lending and asset-based lending platforms that are entering the space. M&A volume in the core and lower middle market continues to disappoint, so refinancings and restructurings are likely to dominate activity in the market for the foreseeable future. Great Rock Capital will continue to remain selective and focus on the situations where we can add the most value/liquidity for borrowers in 2026. In addition, we will continue to seek out situations to partner with our private equity relationships to increase liquidity for their portfolio companies.”
Palmer adds market color: “These market pressures also reshaped the private capital landscape. Private equity faced increased turbulence as higher interest rates drove up financing costs, forecasts were missed, and concerns around consolidation intensified. In response, companies were pushed to take a more comprehensive view of the capital stack and fully understand the range of financing options available to them.”
Scott Winicour, CEO, Gibraltar Business Capital, concurs: “Looking back on 2025, asset-based lending operated in a more crowded, more aggressive arena. Competition increased as newcomers and regional banks pushed pricing and structures even tighter. That competition drifted into over-aggressive terms and weaker monitoring in some areas of the market. We saw at least one private credit platform fail under loss pressure with broader rumblings of portfolio stress elsewhere. That doesn’t guarantee a “private credit bubble,” but it’s a useful reminder that when standards loosen, issues tend to surface somewhere in the system.”
Palmer is bullish: “Asset-based lending continued to stand out in this environment as a stable and dependable solution. Because ABL facilities are tied to hard assets and protected through strong dominion and control structures, they held up well through broader market swings and proved particularly effective in uncertain economic conditions. Unlike private credit, ABL offers both stability and flexibility without requiring companies to dilute ownership or give up equity — an increasingly important consideration in volatile markets. On the consumer side, the retail landscape continued to evolve just as rapidly. Many consumer brands begin online or within a single retail channel, but recent years have reinforced the importance of an omnichannel approach. Consumers now expect to shop wherever it is most convenient for them, and diversifying distribution channels has become a critical safeguard when any one channel contracts or shifts.”
For banks, 2026 could be a fruitful year. Federal regulators have scrapped a critical safeguard put in place in the wake of the 2008 financial crisis, as the White House wants to pave the way for banks to underwrite spicier loans to the buyout industry. The shift is expected to provide banks with more ammunition to compete with private credit funds in 2026 and beyond. The OCC and FDIC rescinded the leveraged lending guidance introduced in 2013 because it was considered too restrictive and captured too many types of loans. These guidelines (generally any leveraged loans beyond 6X EBITDA) were widely interpreted as binding on banks. Rescinding the guidance on leverage lending will initially lead to more rapid leveraged loan growth by banks, but eventually it may also lead to higher credit losses for banks in the next credit cycle.
ESOPs — Employee Stock Ownership Plan borrowers — were once highly prized by lenders, partially on the thesis that companies owned by employees will outperform companies owned by founders or families … and that customers are proud to have an ESOP as a supplier. However, some lenders have discovered to their dismay that some ESOP Boards of Directors are weak, controlled by one dominant executive or a clique who ride roughshod over the Board of Directors members who work in the warehouse or drive a company truck. As well, capital calls in ESOP often go unanswered. Additionally, some ESOPs are saddled with massive, unproductive senior and subordinated debt when the company was sold to the ESOP. Lastly, ESOPs are complicated and costly to unwind. 2026 may see fewer ESOP financings than in the past. As a result, many zombie ESOPs stalk the halls of banks these days.
2025 marked the 25th anniversary of the tech bubble bursting. From 1995 to 2000, NASDAQ increased fivefold. By March 2000, NASDAQ was in a freefall, erasing over one-third of its value. In 2025, Ford Motor Company took a $19 billion special charge (approximately $5 per share — Ford’s common shares traded at $13.35 on Christmas Eve 2025), representing a massive destruction of enterprise value. What will 2026 bring in the global stock markets?
In 2025, investors in the A.I.-fueled stock market largely shrugged off warnings about a tech bubble, optimism that pushed up share prices to repeated new highs last year. But the debt market is telling a different story. New artificial intelligence companies looking to raise funds to supercharge their nascent businesses are paying lofty interest rates, indicative of lenders’ skepticism about new, unproven A.I. business models. There are other indicators of lenders’ wariness – some of the bond issues in late 2025 have tumbled in price, in a sign of increased caution among lenders. And the cost of credit default swaps has surged in late 2025 on some A.I. companies’ debt.
In every era, there’s a moment when a technology stops being a clever invention and becomes an expensive system. That is when the real contest begins — not over whether the thing works, but whether its cash flow can cover the enormous debt that financed it.
U.S. economic history is littered with technology roadkill. Railroads were the first modern buildout where the technology was real, the need was real, yet overbuilding, and “exuberant” financing blew up the sector. One hundred years later, internet optical fiber and digital switching were the modern archetype because the physical buildout was real and the long-term need was real. The bust came when cash flows didn’t build up as quickly as the promoters had promised. Capacity arrived faster than utilization, creating dark fiber. Prices fell as competitors fought to fill pipes, and the debt stack — built on the investment thesis that “demand will catch up before maturity” — lost its foundation. One of the industry’s largest players, Canada-based Nortel, which went bankrupt, accounted for a staggering 45% of the Toronto Stock Exchange’s market cap at its peak. Exuberance indeed!
What will 2026 bring for asset-based lenders and their advisors as they grapple with AI? Will AI accelerate the deal structuring process with new borrowers and result in rapid-fire “Swiss cheese proposals”? Will the credit granting process become more streamlined? Will AI eventually dull the senses and intuitions of loan portfolio managers? Will AI dilute the importance of knowing the borrower (read: the controlling shareholder of Le Nature in Latrobe, PA, bought a $1 million model train set while claiming W2 income of $45,000 that year). Will AI suggest solutions to problems that are unrealistic or do not reflect or address the nuances in the credit picture? Will AI do ”the spreads” in minutes when annual financial statements of borrowers arrive at lenders’ doorsteps, instead of junior associates laboring until midnight (as was the case of the author at a Chicago bank using LOTUS 1-2-3)? What will AI do to the career paths in ABL of new associates who traditionally cut their teeth in field exams and collateral monitoring? Will AI allow regulators to more closely correlate loan performance with the original loan documents? Or will AI create false guardrails? Will AI help or hinder appraisals and liquidation strategies? Will AI make ABL “winners” (those who successfully harness AI as a competitive advantage to win new business) and “losers” (those who lose competitive advantage)?
In the 1970s, the fax machine telescoped the time for new deals to be papered over and for Chapter 11 cases to play out. In the 1990s, the internet telescoped these times further. What will AI do to law firms in 2026 and beyond? AI can do contract review in five minutes versus the 10 hours of a first-year associate. The hourly billing model of law firms will surely be affected. AI is accepted now as evidence in some courts. Are there unintended consequences in this?
Paul Shur, partner at Becker, provides color: “Service provider law firms which represent lenders in the ABL space encounter AI-generated challenges and opportunities, much like the lenders. In our efforts to provide cost-efficient services, the attorneys’ code of ethics mandates that we be “current” in technology, including AI. This means that we study the various alternatives available to enable us to research and prepare analyses for our lender clients. It also means that we verify and cross-check sources of information and databases utilized by AI engines to make sure the underlying sources are reliable. This is more than avoiding the highly publicized news reporting of attorneys submitting briefs to the court prepared by AI sources, where the underlying case citations were faulty and unreliable. It is reassuring that the databases are secure and inaccessible to third parties who might interfere with the confidences and client information underlying the attorney’s access, also a function of the attorney’s code of ethics and our mandate to preserve the confidences of our clients. Thus, the use of AI and current technology must be balanced against the risks of maintaining confidential information, both equally important requirements of the attorney’s code of ethics. Our ABL clients deserve and expect prompt, reliable analysis of the legal issues presented by pending transactions. Using AI engines will expedite that response — but attorneys must be on guard in doing so to avoid tripping ethical restraints and duties that are ever-present in everything attorneys do in their practices.”
Winicour at Gibraltar looks ahead to this upcoming year: “As we look forward to 2026, uncertainty remains the headline. Tariffs and trade policy shifts, along with still-evolving supply chains, keep cost structures and timing less predictable for borrowers. Regardless of whether tariffs ultimately have the intended large-scale impact, the day-to-day reality is volatility. That’s what drives businesses toward diversified, flexible lending partners. We don’t expect traditional banks to re-enter lower middle market and middle market lending with the same appetite as past cycles, which continues to support private credit and non-bank ABL as essential growth capital.”
He adds, “that structural tailwind is why we’re increasingly bullish on ABL in 2026. We’ve expanded our own facility and balance sheet capacity in anticipation of continued demand for creative, well-structured, and well-monitored asset-based solutions. Going through that expansion ourselves reinforces what strong capital relationships require: clarity, durability, and alignment that holds up when conditions shift. As we watch the Fed’s path, inflation, and GDP into 2026, and the likely pickup in middle-market and platform M&A if rates ease, we see ABL remaining one of the most practical tools for companies navigating an uneven but opportunity-rich economy.”
Palmer concludes: “Ultimately, preparing for growth in today’s environment means preparing for uncertainty. Companies that invest early in resilient sourcing, flexible distribution, and adaptive capital strategies are better positioned not just to weather volatility, but to emerge stronger on the other side.”
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Despite his prominent role as a financier on the boards of ten banks and trust companies, as well as a board member of twenty industrial companies and clubs, August Belmont Jr. ended up as a footnote in The Gilded Age, best known for his role as a horseman. The greatest of the horses that August Belmont Jr. bred was Man o’ War, who raced 21 times, losing just once. To his owner’s delight, Man o’ War won the 1920 Belmont Stakes. Man o’ War is now considered to be one of the greatest racehorses of all time.
Hugh Larratt-Smith is a Managing Director of Trimingham and is a regular contributing author to ABF Journal.