Questions about the health of the booming sector are growing louder amid a flood of redemption requests among some high-profile private credit funds.
The latest news has added to concerns that were kicked off late last year. While private markets appear steady overall, investors are growing increasingly worried that cracks could be forming at a time when more retail investors are being invited into the market.
Here's a rundown of everything that's happened lately to cause jitters to spike.
Tricolor and First Brands buckle
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Date: September 10-24
What happened: Anxiety about the private credit sector picked up after subprime auto lender Tricolor Holdings and auto parts company First Brands declared bankruptcy late last year. Tricolor was the first to go under, filing for bankruptcy on September 10, with First Brands following several weeks later.
In December, federal prosecutors in New York unsealed an indictment that charged Tricolor's founder, Daniel Chu, with bank fraud, wire fraud, and other offenses. In a statement, the US Attorney's Office said Tricolor's executives had attempted to "manipulate the characteristics of collateral to make ineligible, near-worthless assets appear to meet lender requirements."
In January, prosecutors unsealed an indictment revealing similar charges against First Brands' CEO, Patrick James, and his brother, a senior executive at the firm. Prosecutors alleged that the pair "perpetrated a yearslong fraud" that culminated in First Brands' bankruptcy.
Jamie Dimon warns of credit cockroaches
Fabrice COFFRINI / AFP via Getty Images
Date: October 14
What happened: Jamie Dimon, one of Wall Street's most influential bankers, said he was watching for more signs of trouble in private credit on an earnings call with investors.
"When you see one cockroach, there's probably more," the JPMorgan boss said, adding that his firm would "scour" its underwriting and other procedures after the collapse of First Brands and Tricolor.
"Asset prices are high, a lot of credit stuff that you would see out there, you will only see in a downturn," Dimon added, noting that the US credit space had looked "benign" for years.
Other figures on Wall Street have also warned of more trouble in the sector in recent months.
Apollo CEO Marc Rowan said he saw a potential "shakeout" in private credit when speaking at the Bloomberg Invest Conference on Tuesday.
Lloyd Blankfein, Goldman Sachs' former CEO, also doubled down this week on his view that financial markets could soon face a "reckoning," potentially stemming from private credit.
UBS sees private credit defaults rising to 15% in the worst-case AI scenario
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Date: February 11
What happened: Investors grew more nervous about private lending as UBS speculated that defaults could soar in a severe "AI disruption" scenario.
In a note to clients last month, strategists at the bank said they lifted their forecasts for private credit defaults. In a scenario where AI disrupts the business world at a "rapid and aggressive" pace, the bank said it sees the private credit default rate potentially rising as high 15%.
In its analysis, UBS pointed to how AI disruption fears had sparked a deep sell-off in software stocks, one area of the market with large exposure to private credit. Software accounts for around 40% of all private equity-backed loans outstanding, according to a recent Bloomberg analysis.
"I do think, though, software is a big stick. You know, the credit market has had all these sticks being dropped on it, and one day, it'll really buckle," Victor Khosla, the CIO of Strategic Value Partners, said at the time.
Blue Owl halts withdrawals
Brendan McDermid/Reuters
Date: February 18
What happened: The Financial Times reported that Blue Owl permanently froze redemptions on its Capital Corporation II fund, a private debt fund it had opened to retail investors.
The firm said investors in the fund would no longer be able to cash out their investments on a quarterly basis, but would instead receive periodic payments as Blue Owl sells its assets over time.
Online, the move sparked comparisons to how some debt funds froze withdrawals leading up to the Great Financial Crisis.
Speaking to CNBC after the initial reports, Craig Packer, co-president and the company's head of credit, said he believed media coverage about the fund's changes was misleading.
"We're not halting redemptions, just changing the form, and if anything, we're accelerating redemptions," Packer said.
Top economist Mohamed El-Erian sees a "canary in the coalmine"
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Date: February 19
What happened: Famed economist Mohamed El-Erian said he believed Blue Owl's move was a warning for financial markets.
In a LinkedIn post, the chief economic advisor at Allianz said the firm's decision to halt redemptions could be a "canary-in-the-coalmine" moment that could hint at risks to the broader financial system.
He added that he believed the "investing phenomenon" in private markets had gone too far.
"There's also the 'elephant in the room' question regarding much larger system risks (nowhere near the magnitude of those which fueled the 2008 Global Financial Crisis, but a significant — and necessary — valuation hit is looming for specific assets)," El-Erian wrote.
Blue Owl fails to syndicate a data center loan for CoreWeave
An executive familiar with large data center financing told Business Insider that Blue Owl faced limited interest in the data center due to hesitation from other lenders and investors who were concerned about exposure to AI firms with weaker credit. Coreweave has a credit rating of B+, according to S&P Global, below investment grade.
The report followed others that have suggested lenders are growing skittish over data center deals being cut in private markets.
In a statement, Oracle told Business Insider that the details in the FT story were "incorrect."
"Our development partner, Related Digital, selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl. Final negotiations for their equity deal are moving forward on schedule and according to plan," Michael Egbert, a spokesperson for the software giant, told Business Insider in December.
Blackstone taps execs for cashBlackstone logo
Craig T Fruchtman/Getty Images
Date: March 2-3
What happened: Blackstone is the latest firm to draw heightened scrutiny to the private credit market. The private equity giant was hit with a wave of redemption requests from a private credit fund offered to retail investors.
Bloomberg reported on Tuesday that, in an unusual move, the firm tapped more than 25 top executives to raise $150 million in order to meet the flood of requests.
Speaking to CNBC, Blackstone president Jon Gray said he believed investors may be motivated to withdraw their funds due to the "constant spin cycle" over recent private credit failures.
"When that's happening, it's not a surprise that investors can get nervous, financial advisors can say 'Hey, I want to redeem,'" Gray said on Tuesday.