"Private Credit" meltdown

[Mac1958]

The single biggest worry that markets have right now, outside of the (hopefully temporary) domestic/global impact of oil prices, is a looming private credit crash.

So if/when you hear about this, here's a quick overview:

• We're talking about a potential crash of around $2 trillion here, so this could end up being very, very big, and a big domino situation.
• Private credit companies (like Blackstone, Ares, Apollo, Blue Owl) loan money from investors to loan and/or take equity in mostly private (non-stock) companies.
• Over the last couple of decades, a very high percentage (I've heard as high as 80%) of their business has been software-oriented.
• The explosion of AI is a direct threat to those software companies because (theoretically) AI can write code on its own.
• The software sector has taken a huge recent beating as a result.
• That's creating a cascade effect, because now these software companies are defaulting on loans.
• Example: Blue Owl recently told investors that they can't access their funds, or only on a restricted basis.
• The private credit companies are get a LOT of redemption requests right now, adding to the pressure. They're reacting. I won't be surprised if most of them put more restrictions on redemptions.
• This ain't a panic yet, but it ain't good.

Sound familiar? One sector crashing, causing a cascading effect? Yeah, 2008 and real estate. What I don't know at the moment is (a) the degree of leverage being used inside the system, or (b) if and how derivatives are playing a role here. It's the insane amounts of leverage and derivatives that were allowed to banks that played the biggest roles in the 2008 Meltdown.

Are private credit companies "too big to fail"? Are we going to find out once again that a Wild West financial industry environment will come back to bite us on the ass?

No predictions here. But that's where we are at the moment.

 

[Muhammed]

The single biggest worry that markets have right now, outside of the (hopefully temporary) domestic/global impact of oil prices, is a looming private credit crash.

So if/when you hear about this, here's a quick overview:

• We're talking about a potential crash of around $2 trillion here, so this could end up being very, very big, and a big domino situation.
• Private credit companies (like Blackstone, Ares, Apollo, Blue Owl) loan money from investors to loan and/or take equity in mostly private (non-stock) companies.
• Over the last couple of decades, a very high percentage (I've heard as high as 80%) of their business has been software-oriented.
• The explosion of AI is a direct threat to those software companies because (theoretically) AI can write code on its own.
• The software sector has taken a huge recent beating as a result.
• That's creating a cascade effect, because now these software companies are defaulting on loans.
• Example: Blue Owl recently told investors that they can't access their funds, or only on a restricted basis.
• The private credit companies are get a LOT of redemption requests right now, adding to the pressure. They're reacting. I won't be surprised if most of them put more restrictions on redemptions.
• This ain't a panic yet, but it ain't good.

Sound familiar? One sector crashing, causing a cascading effect? Yeah, 2008 and real estate. What I don't know at the moment is (a) the degree of leverage being used inside the system, or (b) if and how derivatives are playing a role here. It's the insane amounts of leverage and derivatives that were allowed to banks that played the biggest roles in the 2008 Meltdown.

Are private credit companies "too big to fail"? Are we going to find out once again that a Wild West financial industry environment will come back to bite us on the ass?

No predictions here. But that's where we are at the moment.

Let them crash and burn. That would be a good thing IMO. Too big to fail is to big to exist.