Key Takeaways
- • Blue Owl Capital reported a historic level of redemption requests at its business development company (BDC) this week and limited withdrawals, a step the fund is permitted to take, according to Reuters.
- • Ares Management, Apollo Global, Blackstone, KKR, and the private credit arms of Morgan Stanley, J.P. Morgan and Goldman Sachs have also capped redemptions, with most describing the moves as a recalibration rather than a crisis.
- • Publicly listed BDC shares trade at roughly a 20% discount to net asset values this year, and U.S. software services shares have fallen by a fifth, reflecting AI disruption and default concerns.
- • The Alternative Investment Management Association estimates the private credit industry at $3.5 trillion, while private credit accounts for around 35% of total U.S. insurer investments and close to a quarter of UK insurer assets, per Oxford Economics.
- • Oxford Economics' Javier Corominas argues the market is in the early stages of a rolling crisis, with 25%-35% of portfolios exposed to AI disruption risk, and warns losses could erode insurer solvency and retirement security rather than trigger a 2008-style bank run.
Summary
Redemption requests from investors in private credit funds, known as business development companies (BDCs), have accelerated in 2026 on concerns about competition, falling returns and fears that artificial intelligence will disrupt the software businesses these funds finance. Blue Owl Capital was the latest BDC to report a historic level of redemption requests and to limit withdrawals, which it is permitted to do. Ares Management, Apollo Global, Blackstone, KKR and the private credit arms of Morgan Stanley, J.P. Morgan and Goldman Sachs have also capped redemptions. Most of these firms have characterized the outflows as a period of recalibration rather than a crisis, according to Reuters.
Other signs of stress are emerging. BDCs are paying higher rates on their bank borrowings even as the historically high double-digit returns on private lending shrink. John Giordano, managing director of Seaport Global Holdings, said credit cycles will bring losses and markdowns, but he does not believe the risks are systemic, citing low BDC leverage, senior debt holdings, equity involvement in portfolio companies and a well-capitalized banking sector. Data on exposures, valuations and losses remains limited because the deals are private, though BDCs collectively hold more than half a trillion dollars of private assets. Publicly listed BDC shares have fallen sharply this year, trading at roughly a 20% discount to net asset value, and U.S. software services shares have fallen by a fifth.
Concern about AI-driven disruption is central to the warnings. Partners Group chair Steffen Meister said last month that private credit default rates could double over the next few years. Marlborough cut exposure to some asset managers and shed its Partners Group holdings, according to equity portfolio manager Rory Dowie, who warned of a self-fulfilling, systemic snowball effect between public and private markets. Alberto Gallo, chief investment officer at Andromeda Capital Management, said the industry is still early in identifying problems, which may surface within months.
The larger concern cited by Oxford Economics is exposure among insurers. Javier Corominas, director of global macro strategy at Oxford Economics, said total bank lending to BDCs is modest and manageable, but U.S. life and annuity insurers' private credit holdings have more than doubled over the past decade. He estimated that insurers affiliated with private equity firms hold around $1 trillion in assets acquired through those relationships, with losses likely to fall disproportionately on U.S. pension funds and retail annuity holders. Corominas said contagion would look like a slow erosion of retirement security rather than the bank-run dynamics of 2008. Gallo made a similar distinction, noting that 2008 contagion ran through banks with proper asset valuation, whereas the current channel runs through insurers without mark-to-market accounting.
Other signs of stress are emerging. BDCs are paying higher rates on their bank borrowings even as the historically high double-digit returns on private lending shrink. John Giordano, managing director of Seaport Global Holdings, said credit cycles will bring losses and markdowns, but he does not believe the risks are systemic, citing low BDC leverage, senior debt holdings, equity involvement in portfolio companies and a well-capitalized banking sector. Data on exposures, valuations and losses remains limited because the deals are private, though BDCs collectively hold more than half a trillion dollars of private assets. Publicly listed BDC shares have fallen sharply this year, trading at roughly a 20% discount to net asset value, and U.S. software services shares have fallen by a fifth.
Concern about AI-driven disruption is central to the warnings. Partners Group chair Steffen Meister said last month that private credit default rates could double over the next few years. Marlborough cut exposure to some asset managers and shed its Partners Group holdings, according to equity portfolio manager Rory Dowie, who warned of a self-fulfilling, systemic snowball effect between public and private markets. Alberto Gallo, chief investment officer at Andromeda Capital Management, said the industry is still early in identifying problems, which may surface within months.
The larger concern cited by Oxford Economics is exposure among insurers. Javier Corominas, director of global macro strategy at Oxford Economics, said total bank lending to BDCs is modest and manageable, but U.S. life and annuity insurers' private credit holdings have more than doubled over the past decade. He estimated that insurers affiliated with private equity firms hold around $1 trillion in assets acquired through those relationships, with losses likely to fall disproportionately on U.S. pension funds and retail annuity holders. Corominas said contagion would look like a slow erosion of retirement security rather than the bank-run dynamics of 2008. Gallo made a similar distinction, noting that 2008 contagion ran through banks with proper asset valuation, whereas the current channel runs through insurers without mark-to-market accounting.
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