Key Takeaways
- • Blue Owl Capital, the largest private credit firm, has seen its stock fall more than 50 percent over the past year, including a 10 percent drop on Tuesday, according to The New York Times.
- • Investors have been pulling money from funds managed by Blue Owl, while Apollo Global Management and BlackRock have rattled investors with write-downs on large loans to troubled e-commerce companies.
- • Software firms have received roughly 20 percent of loans made by private credit funds, and Barclays and UBS analysts warned of rising loss risks on those loans.
- • Publicly traded software firms have lost roughly one-fifth of their value this year, and prices of tradable software loans have also dropped.
- • Concerns about private credit have built for months after a string of loan losses raised questions about borrower financial stability.
Summary
Private credit, an industry focused on lending to risky companies, has been one of the fastest-growing sectors on Wall Street, attracting trillions of dollars in investments and creating a number of billionaires. According to The New York Times, that momentum is now showing strain. Blue Owl Capital, the largest private credit firm, has seen its stock fall more than 50 percent over the past year, including a 10 percent decline on Tuesday, and investors have been withdrawing money from funds the firm manages.
Other large players have also faced investor concern. Apollo Global Management and BlackRock have rattled investors with write-downs on sizable loans to several troubled e-commerce companies. Concerns about risks in the industry have been rising for months, as a series of loan losses has raised questions about the financial stability of private credit borrowers.
The immediate trigger for Tuesday's turmoil was a sudden fear that software companies, which borrow heavily from private credit firms, could be upended by artificial intelligence. Software firms account for roughly 20 percent of loans made by private credit funds. Analysts at Barclays and UBS warned this week about the risk of increased losses on these loans, noting that publicly traded software firms have lost roughly one-fifth of their value this year and that prices of tradable loans have also declined.
Jared Ellias, a professor at Harvard Law School who recently co-wrote a paper on the growth of private credit, noted the sector's lack of experience with downturns. "This industry has never gone through a down cycle, so it makes a lot of sense that investors are especially jittery," he said.
Other large players have also faced investor concern. Apollo Global Management and BlackRock have rattled investors with write-downs on sizable loans to several troubled e-commerce companies. Concerns about risks in the industry have been rising for months, as a series of loan losses has raised questions about the financial stability of private credit borrowers.
The immediate trigger for Tuesday's turmoil was a sudden fear that software companies, which borrow heavily from private credit firms, could be upended by artificial intelligence. Software firms account for roughly 20 percent of loans made by private credit funds. Analysts at Barclays and UBS warned this week about the risk of increased losses on these loans, noting that publicly traded software firms have lost roughly one-fifth of their value this year and that prices of tradable loans have also declined.
Jared Ellias, a professor at Harvard Law School who recently co-wrote a paper on the growth of private credit, noted the sector's lack of experience with downturns. "This industry has never gone through a down cycle, so it makes a lot of sense that investors are especially jittery," he said.
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