Private Credit Strains Spread as BDC Redemptions Hit Records
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- Private credit is under mounting strain since mid-last year, with Blue Owl Capital, Ares Management, Apollo Global, Blackstone, KKR, Morgan Stanley, JPMorgan, and Goldman Sachs all exercising their ability to limit record investor redemptions from business development companies.
- Business development companies hold more than $500 billion in assets and the broader private credit market has grown to roughly $3.5 trillion, a size the Reuters report flags as significant enough to influence global financial stability.
- BDC borrowing costs have risen even as the sector's signature double-digit returns begin to compress, and shares of publicly listed BDCs have declined sharply this year, trading at notable discounts to net asset values.
- Artificial intelligence has emerged as a key risk factor, with investors fearing that a sizable portion of private credit portfolios—particularly those backing software and technology firms—face higher default rates from AI-driven disruption.
- U.S. life insurers and annuity providers have significantly increased private credit allocations over the past decade, creating a transmission channel the report warns differs from 2008: potential contagion could erode retirement savings gradually rather than trigger a sudden banking collapse.
- Asset managers are trimming exposure to private equity-linked firms amid concerns that the interplay between public and private markets in AI financing could amplify risks, while limited transparency on private deal valuations may obscure weaknesses until they worsen.
Why it matters: Unlike the 2008 crisis, the danger is not a sudden banking collapse but a slow erosion of retirement savings: U.S. life insurers and annuity providers have built large private credit allocations over the past decade, meaning pension funds and retail savers tied to insurance-linked products could absorb losses gradually, masked by the sector's opacity around exposures and valuations.
