"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.

 

[evenflow1969]

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.

Probably going to be called to big to fail. Gunna be like the last time when we bailed out the banks. That bail out would have been big enough to pay off every mortgage in the US. Select few got the money yet each and every one of us are responsible for the debt. We will be told the poor are scum and the rich are all that so bite the bullet. We take on the debt and don't get skit out of it. The rich keep their yachts, rape and eat children and we foot the bill

 

[1srelluc]

What's Michael Burry doing these days?

The last I heard he was shorting software stock but that was a good year ago.

 

[Mac1958]

Okay, so I've done some more digging.

Two concerns I raised in the OP are over-use of both leverage and derivatives. It's looking like derivatives are not an issue (at least not yet), but there is a lot internal leverage in this story. That only amplifies the problem.

The BDC's (Business Development Companies, like Blackstone, above) that lend to these software companies are not just using investor money, they're also taking out loans with banks. Right now that balance is approaching $150 billion all by itself. So that means the borrowers are in trouble, the BDC's are in trouble, and the banks that lend to them is in trouble. AND, since so many of the borrowing companies are opaque (because they're not public), much bigger problems are possibly being hidden.

That's a good old fashioned cascade effect. That means letting them crash flows through the entire global financial system, just like it began to in 2008/2009. New regulations are being looked at (gee, it would have been nice if they had been in place, which is what we said about 2008) to deal with this, but that's after the fact only.

So, we'll see.

 

[Toddsterpatriot]

Probably going to be called to big to fail. Gunna be like the last time when we bailed out the banks. That bail out would have been big enough to pay off every mortgage in the US. Select few got the money yet each and every one of us are responsible for the debt. We will be told the poor are scum and the rich are all that so bite the bullet. We take on the debt and don't get skit out of it. The rich keep their yachts, rape and eat children and we foot the bill

Gunna be like the last time when we bailed out the banks. That bail out would have been big enough to pay off every mortgage in the US.

Wow! That's some really bad math you're spouting there.

Select few got the money yet each and every one of us are responsible for the debt.

The bailout was repaid. The US Treasury made a huge profit.

We will be told....

Dude!