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 08:33 PM | 9 COMMENTS | permalink

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Private credit's 'zero-loss fantasy' is coming to an end as defaults and fund exits rise

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-- CNBC (@cnbc.com) Mar 25, 2026 at 4:43 AM

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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

Private credit and private equity firms often feed off of each other, with the latter borrowing from the former to leverage purchases of operating businesses. In my career as a lender I've observed that these firms, collectively, provide no support for the actual operating businesses during tough times, walking away with as much dough as they can carry. What does this mean for investors? The 'smart guys' running private credit and private equity care little for the losses foisted upon investors, because the folks operating these funds have already been paid, and have little--if any--skin in the game. Who will get hurt in the end? Naive investors running insurance companies and pension funds, which causes ripples in the insurance contracts and retirement systems for millions of Americans. Hang on, it will get worse from here...

#8 | Posted by catdog at 2026-03-26 08:14 AM

A home buying opportunity is on the horizon. These cycles will repeat at a quickening pace as the concentration of wealth is hoarded at the top.

You can see the vultures in the GOP just stealing as much money for themselves as they can. All the good little GOPiggies are lining up at the trough to get a share before the system implodes under their mismanagement.

Welcome to end stage capitalism.

Pain is coming.

Time for pitchforks.

#9 | Posted by Nixon at 2026-03-26 10:32 AM

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