Private Credit: how worried should we be?

The $1.5tn private direct lending market provides critical capital to startups and other companies that would struggle to get bank loans or sell bonds. These debt funds, particularly a rapidly growing category aimed at wealthy individuals, have also become some of the fastest growing and most profitable offerings for Blackstone, Blue Owl and other big name alternative asset managers. When the Trump administration said last year that it was considering opening the $9tn US corporate retirement system to private credit, the future seemed limitless.

But fear has been rising since last summer that funds run by some of Wall Street's biggest names could be overvalued because their loans are riskier than previously believed, so individuals tried to pull billions of dollars out in the first quarter, forcing BlackRock, Morgan Stanley and others to impose redemption limits. Fund managers say that loan defaults remain low and the withdrawal caps show the system is working; hedge funds and Wall Street prognosticators warn of more trouble to come.

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