Wednesday, March 25, 2026

Private credit’s 'zero-loss fantasy' is coming to an end

Deteriorating asset quality, collateral markdowns and a growing rush for the exits are rattling private credit markets and prompting comparisons to the Global Financial Crisis.

Posted by qcp at 09:27 AM | 7 COMMENTS | permalink

Comments

More: Ares Management on Tuesday opted to curb investor withdrawals from its $10.7 billion private credit fund, just a day after Apollo Global Management unveiled similar measures in one of its vehicles. Ares has capped redemptions in its Ares Strategic Income Fund at 5%, after withdrawal requests surged to 11.6%, according to a Bloomberg report.

Other managers, including Blue Owl Capital and Cliffwater, have also scrambled to halt or restrict withdrawals in recent weeks, as rising default fears spark an investor retreat from the sector.

Comparisons to the build-up to the 2008 Global Financial Crisis are now intensifying as concerns over underlying loan quality grow.

Morgan Stanley recently warned default rates in private credit direct lending could surge to 8%, well above the 2-2.5% historical average, with pressure concentrated in sectors vulnerable to AI disruption, such as software.

#1 | Posted by qcp at 2026-03-25 09:27 AM

-Morgan Stanley recently warned default rates in private credit direct lending could surge to 8%

what is "private credit direct lending"? what kind of a loan is that?

#2 | Posted by eberly at 2026-03-25 09:30 AM

AI Overview

Private credit direct lending involves non-bank institutions--such as asset managers or BDCs--providing customized, senior-secured loans directly to middle-market companies. It is a rapidly growing alternative asset class (36% of total private credit in 2024) offering investors floating-rate income, higher yields, and stronger downside protections, typically via maintenance covenants.

#3 | Posted by Dbt2 at 2026-03-25 10:19 AM

Thanks. Sorry....I could have done that. That's kind of what I thought it was.

It's a signal of what's coming.............thanks for sharing.

#4 | Posted by eberly at 2026-03-25 10:40 AM

4. I worked for the Fed back in the late 80s, and the economists were all about creating weird theoretical asset/loan/derivative instruments and what their effects might be.

About half the economists were hip or at least interesting smartypants; the other half you'd have a hard time peeling off a wall.

#5 | Posted by Dbt2 at 2026-03-25 11:08 AM

Basically a huge portion of really rich finance bros are going to need to get real jobs soon.

And loans/investments for start ups and midmarket are going to crater.

And all of this should be easily expected since there are so many billion dollar AI startups don't have revenue yet...or a product yet...or an idea of market demand for an eventual product yet...

This along with bleeding by mid market firms across multiple sectors due to tariffs and rising costs.

And there are a ton of smaller AI companies not in the billion dollar space that will also go.

A lot of the investor companies are hugely overleveraged.

A lot more of the investors at these investor companies are even more overleveraged with loans to invest in the first place. And many of those loans are secured with their existing assets like stock.

So a small shock ends up causing a run on the investment companies and investors get a forced sale/margin call due to being overleveraged which ends up dropping stock prices and cascading down to take out more investment companies and investors.

#6 | Posted by Sycophant at 2026-03-25 12:08 PM

My first instinct when hearing that investment firms might get their a&&es handed to them is "good, couldn't happen to a nicer group of people."

But then you realize that they've sunk their claws into just about everything in our world and when they lose their a&&, everyone else is the true loser as they'll ensure they walk away as unscathed as possible.

#7 | Posted by jpw at 2026-03-25 12:29 PM

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