Pod Insights Finshots Daily The private credit boom has a problem About this episode In today’s episode on 7th April 2026, we tell you why everyone is suddenly worried about private credit, despite the industry booming.
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Transcript 0:00 Speaker 00 Hello folks, you're tuned in different charts daily. In today's episode, we tell you why everyone is suddenly worried about private credit despite the industry booming.
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0:53 Speaker 00 A few days ago, a company called Blue Owl Capital left billions of investors stuck when they tried to pull out their money from a thirty-six billion dollars fund that it manages. While investors tried to take out over twenty percent of their money from this fund, Blue Owl put a cap on withdrawals at no more than five percent. Now, you might not have heard of Blue Owl, but it has created quite a bit of chatter in the financial news circles of late because it doesn't manage this kind of funds that investors like you and I invest in. It's a huge American alternative asset management firm that manages over three hundred billion dollars in assets now, compared to just about fifty billion dollars in twenty twenty-one. So, you can see how aggressively it has expanded. And the funds we are talking about here, the ones investors are locked out of,
1:36 Speaker 00 are private credit funds managed by Blue Owl, a major player in the space. So, what's private credit, you ask? Well, it's essentially lending done by firms that are not banks and through bonds, which are debt instruments where you borrow money from the market by promising fixed interest payments and repayment of principal later. Instead, alternative asset managers like Blue Owl pool money from large investors, pension funds, insurance companies, sovereign wealth funds, family offices and high net worth individuals into a fund. This fund is then used to lend to mid-sized companies that often struggle to access traditional finance. Because they're seen as riskier than large corporations. And this market has boomed exponentially since the two thousand eight financial crisis. Back then, banks gave out too many risky loans to people with low credit worthiness,
2:21 Speaker 00 often with little or no income verification to buy homes and at low interest rates. But when interest rates rose, these borrowers struggled to pay back, triggering default and a global financial crisis. That was a turning point for banks, which faced massive losses. Post-crisis rules like the Dodd-Frank Act and Basel III norms required them to hold higher capital and maintain cash-like assets for stress scenarios. This forced them to shrink lending to smaller, riskier firms, shifting focus to big corporates. US banks also dropped from about fourteen thousand in the nineteen nineties to roughly half that by two thousand eight. This created a gap that non-bank lenders like private equity firms stepped in to fill by offering flexible direct loans to mid-sized companies, and it only grew.
3:05 Speaker 00 To give you a sense of scale, the private credit market has grown five-fold since the two thousand eight crisis to somewhere near the one point eight trillion dollars mark globally. But now, cracks are beginning to appear in this booming market because it isn't just a one-off case like Blue Owl, but multiple other alternative asset management firms, including some popular names you might know, like BlackRock, Aris Management, Apollo and KKR, are also putting withdrawal limits on funds. So, what's going on? See, private credit looks very attractive. As a large investor, you might want to diversify your investments across different kinds of financial instruments, and private credit seems perfect for that. Since these managers come at billions of dollars expecting steady interest income of about eight to twelve percent.
3:49 Speaker 00 That sounds more stable than equity markets and slightly higher than bond yields. As you know, higher returns come with higher risk, and that's what private credit can be, risky. Because investors are essentially lending to mid-sized firms that may still be growing, and if anything disrupts that growth, things can go from boom to bust very quickly. And that's precisely what seems to be happening now. A good chunk, nearly twenty percent of this private credit, has been given out to mid-sized software companies. To put things in perspective, over the last decade, lending to these SaaS companies has grown by over sixty times to a whopping five hundred billion US dollars by the end of twenty twenty five. And you know what happened as the new year began? Agentic AI tools launched by AI giants sparked fears that AI could do most of the work of building software.
4:34 Speaker 00 If that were the case, software firms wouldn't have much left to build and AI could eat into their revenues. This assumption did two things. One, it dragged down tech stocks, especially SaaS firms. The other was that firms like Morgan Stanley warn that default rates in private credit could rise to eight percent, much higher than the usual two to two and a half percent, especially in sectors like software that are vulnerable to AI disruption. This is so-called AI SaaS apocalypse. As they call it, nudged investors to run to their fund managers to pull out their investments. But the thing is that these funds are kind of locked in for the long term because they're essentially loans. You, as a private credit manager, can't simply tell a borrower, hey, the investor wants their money now, repay my entire loan.
5:16 Speaker 00 Because the money is used by businesses for expansion and would have already been deployed. This explains why credit managers can't really allow investors to withdraw all their money. For instance, out of over two hundred companies that Blueall has lent to, more than seventy percent are software companies. So, when investors knocked on its door, Blueall basically said, sorry, we can't suddenly give you back all your money. The other issue is that these private credit funds are illiquid and can't be easily traded like stocks or bonds. Which means that if a fund manager wants to sell these loans to another investor, it can be very hard, especially now, when the revenue streams of borrowing companies are under question. Add to that geopolitical tensions and demand in the secondary market isn't very strong.
5:57 Speaker 00 New buyers are expecting higher discounts, but firms like Blueout are offering very small ones. For instance, it recently sold one point four billion dollars in loans at ninety nine point seven percent of their value just to return some cash to investors, though not fully. And the fact that other investors are noticing that their investments could also be at a risk is pushing them to run to their fund managers to withdraw money, creating a sort of domino effect. Which begs the question, how bad is the crisis? Well, certain investors, especially insurance companies, could be affected because they are involved in something. Called leveraged buyouts where private equity firms acquire companies using a mix of their own money that is through equity and borrowed money that is through debt.
6:39 Speaker 00 Now, the debt is placed on the company being acquired, not on the private equity firm itself. The goal is to improve the company, pay down the debt using its profits and eventually sell it for a gain. But here's the thing, insurers are heavily exposed to the LBO debt and many private equity giants like Apollo and K K R who are also private credit managers now own insurance companies. So you have private equity firms owning insurers that are exposed to loans linked to such P E deals, which means if many of those loans go bad, it creates a conflict. The insurers could take big losses on investments tied to its own owner. And all of this is scaring everybody in the market to believe that this could trigger another crisis very similar to two thousand eight. Some analysts don't agree and feel like such comparisons could be overblown.
7:24 Speaker 00 According to them, unlike the assumption that borrowers lack credibility, most private credit today is investment grade with only a small portion in higher risk loans. Plus, as per Barclays, a private credit is less than five percent of U S G D P, while real estate and equities are both about a hundred percent. So even if something goes wrong, the scale may not be as large as in two thousand eight. But there is a flip side to this too, something we haven't told you so far. The panic in private credit didn't start with A I. It had already begun months earlier around September last year when two companies ran into trouble. One was Tricolor, a lender giving car loans to risky borrowers. And the other was First Brands Group, an auto parts supplier.
8:07 Speaker 00 Well, both went bust and that had consequences. Firms like J P Morgan, Fifth Third and Jeffries, who had lent their money, had to admit that they'd taken losses on these loans and that's when the unease started to build. In fact, J P Morgan Chase CEO Jamie Dimon summed it up rather bluntly. When you see one cockroach, there's probably more. And the fear of these more cockroaches is what's driving the panic now. So, yes, it's not something the market can simply ignore. Now, that leaves us with one conclusion. A crisis may be looming, but the scale is unknown. What turn it will take and whether fears are overblown is something we'll have to wait and see. All right, folks, I will see you in the next one. Thank you for listening to today's episode.
8:52 Speaker 00 And if you want to share your feedback or suggestions, do drop us an email to [email protected] . Until next time.
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