The private credit market, estimated at $3 trillion by Morgan Stanley, is showing strain as investors pull cash from large lenders. Blue Owl in February said it would sell about $1.4 billion of assets to return money to investors, a move that instead prompted wider selling across the sector. Shares of firms tied to private credit, including Blue Owl, KKR, Apollo and Blackstone, have slid sharply this year, exposing links between non-bank lenders, banks and investors and forcing a rethink about how that debt is funded.

The private credit sector has grown fast. Morgan Stanley now pegs it at about $3 trillion. That figure matters because private credit sits outside traditional banks. Private-equity firms and other non-bank lenders make loans directly to companies. Banks often lend to those lenders rather than to the firms themselves. So problems in private credit can ripple back to banks and markets.

Markets noticed the risk. Fast.

What set off the panic

Two companies backed by private-credit lenders declared bankruptcy in September. Those failures raised doubt about how carefully lenders had underwritten their loans. Jamie Dimon, CEO of JPMorgan Chase, summed up the mood when he said, "When you see one cockroach, there's probably more."

Blue Owl responded in February by announcing it would sell roughly $1.4 billion of assets to return money to some investors. The fund said the move was meant to reassure investors. A spokesman declined to comment on ongoing investor withdrawals. Instead of calming markets, the sale accelerated a sell-off in shares tied to private credit.

Who is being hit

Publicly traded firms that package or manage private-credit assets have seen big share moves this year. Blue Owl's stock is down about 40% since the start of the year. Shares of KKR, Apollo and Blackstone have fallen about 20% or more.

Mastheads

Those price moves reflect investor concern over asset quality and liquidity in funds that are often less transparent than bank loans.

Investors in several private-credit firms have tried to redeem or withdraw money. Olaolu Aganga, head of portfolio construction for Citigroup's wealth-management division, said panic can spread when many investors move at once. He warned that a rush to the exits hits sentiment and forces managers to change plans.

Banks feel the pressure even if they don't make the loans directly. Banks provide financing to private-credit firms or hold securities tied to their loans. That means stress in private credit can affect bank balance sheets and market prices. Regulators and investors are watching those links closely because they can transmit losses through the financial system.

Private credit grew quickly in part because banks pulled back from some types of lending after tighter regulation and risk reviews. Non-bank lenders stepped in to fill the gap.

The model worked while assets were liquid and defaults were low. Now, with a stretch of weaker credit performance and headline losses, that model is under strain.

Fund structures also matter. Many private-credit vehicles offer limited liquidity to investors, with long lock-ups and slow redemption gates. When investors demand cash faster than managers can sell loans, managers either tap backup lines or sell assets at depressed prices. Either option can worsen returns.

Managers and investors differ on how much of the market is at risk. Some large lenders have been working to reassure holders and tighten underwriting. Others face questions about leverage, valuation of loans and the resilience of returns if defaults rise. The debate has moved from private-boardrooms into public markets, where share prices and investor flows set the tone.

So far, the contagion is visible in stock prices and in public statements, not in a broad banking crisis. Yet the events have changed investor behaviour. Funds and institutions are reassessing exposure.

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"When you see one cockroach, there's probably more," said Jamie Dimon, CEO of JPMorgan Chase.

This article was created with AI assistance.