Private Credit Crisis: AI Risks, Redemptions, and Transparency

Name: Why Private Credit Is Facing Its Biggest Test Yet
Uploaded: 2026-05-08T08:00:47+00:00
Duration: 10 min 51 s
Channel: Bloomberg Originals
Description: Summary and key takeaways on Why Private Credit Is Facing Its Biggest Test Yet — Summary, covering The Rise of Private Credit Private credit connects

Bloomberg Originals

May 08, 2026

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10 min video

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2 min read

YouTube video ID: iBBOLjt8haY

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Private credit connects institutional lenders—such as funds and insurance companies—directly with borrowers, bypassing the traditional bank‑led debt capital markets. Borrowers accept higher costs for speed, certainty, and long‑term relationships, especially in fast‑growing software companies that often lack profitability. The sector has expanded from roughly $500 billion in 2015 to about $1.8 trillion today, a growth driven by post‑2008 regulations that pushed risky lending out of banks and into private funds. Some managers view the current market as only the “tip of the iceberg,” envisioning a total opportunity that could reach $40 trillion across supply‑chain finance, music royalties, and municipal‑style financing.

Current Market Pressures

AI has upended the private credit market, creating an existential risk perception for software‑focused loan portfolios. Investors now question the soundness of earlier underwriting decisions, and major firms such as Blue Owl, Blackstone, and Apollo have faced massive, unprecedented redemption requests from retail investors. Funds have responded by imposing withdrawal caps and, in some cases, selling assets to return capital. Blue Owl’s share price has fallen sharply since the start of the year, while KKR has also seen significant declines.

Risks and Criticisms

Private loans are not securities and do not trade on public markets, so they lack market‑determined valuations. This opacity fuels skepticism about “bespoke” valuations and hidden leverage. Recent collapses of Tricolor and First Brands have raised doubts about underwriting quality. Jamie Dimon of JPMorgan has publicly warned that isolated failures may signal broader, hidden systemic issues. Proponents counter that risk resides with investors rather than bank balance sheets, suggesting a lower potential for systemic contagion than in the 2008 crisis.

How the Market Works

Direct lending eliminates the middle stages of bank‑arranged bonds or syndicated loans, allowing lenders to provide capital straight to borrowers. After 2008, regulators restricted banks from risky lending, effectively transferring that activity to private credit funds. When retail investors demand cash back, funds manage liquidity by capping withdrawals or liquidating underlying assets to preserve fund value.

Hard Facts at a Glance

Private credit market size: roughly $1.8 trillion.
2015 market size: about $500 billion.
Potential total opportunity: up to $40 trillion.
Blue Owl’s assets under management grew from ~$100 billion in 2022 to over $300 billion by 2026.
OpenAI valuation: $852 billion.
Geographic split: ~2/3 in North America, the remainder in Europe and Asia‑Pacific.

Takeaways

Private credit has surged to $1.8 trillion by replacing risky bank lending after the 2008 crisis, but its growth relies on opaque, bespoke loan structures.
AI‑driven uncertainty has triggered massive redemption requests, forcing firms like Blue Owl and Blackstone to cap withdrawals and sell assets.
The lack of market‑based valuation means private loans can hide leverage and underwriting weaknesses, prompting criticism from figures such as Jamie Dimon.
Proponents argue that investor‑borne risk limits systemic contagion, yet recent collapses of Tricolor and First Brands highlight potential hidden vulnerabilities.
Geographically, two‑thirds of private credit assets sit in North America, with a projected total opportunity that could reach $40 trillion if new niches expand.

Frequently Asked Questions

How does AI affect private credit loan portfolios?

AI introduces heightened uncertainty for software‑focused borrowers, prompting investors to reassess earlier underwriting assumptions. The perceived existential risk has led to large redemption requests and forced funds to tighten liquidity controls, such as withdrawal caps and asset sales.

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the soundness of earlier underwriting decisions, and major firms such as Blue Owl, Blackstone, and Apollo have faced massive, unprecedented redemption requests from retail investors. Funds have responded by imposing withdrawal caps and, in some cases, selling assets to return capital. Blue Owl’s share price has fallen sharply since the start of the year, while KKR has also seen significant declines. ## Risks and Criticisms Private loans are not securities and do not trade on public markets, so they lack market‑determined valuations. This opacity fuels skepticism about “bespoke” valuations and hidden leverage. Recent collapses of Tricolor and First Brands have raised doubts about underwriting quality. Jamie Dimon of JPMorgan has publicly warned that isolated failures may signal broader, hidden systemic issues. Proponents counter that risk resides with investors rather than bank balance sheets, suggesting

lower potential for systemic contagion than in the 2008 crisis.

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Books On Investment Risk Management

Offers strategies for identifying and mitigating risks in complex portfolios, which is essential given the transparency issues in private credit.

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Full Transcript YouTube

It is been a tough few months
for the $1.8 trillion
private credit market.
The market is going
through its biggest crisis
of confidence in its history.
Private credit firms make loans directly
to companies giving them a
way to borrow outside of banks
and bank-led channels.
They use money predominantly
from institutional investors,
but recently from some
wealthy retail investors too,
and became major lenders
to software companies,
especially those backed by
private equity firms, which by
and large had seemed to
be going pretty well.
Now you just have this
existential risk in the form of AI
that can change everything
and private credit's just
at the center of that now.
Late last year concerned
retail investors started
trying to pull their money out.
Blue Owl allowed investors to
take 15% of shares out of one
of its private credit funds.
It also sold assets to return capital
to investors and reduce debt.
Others got more creative.
We did see some Blackstone
employees basically pitch in
some of their own money to
help meet redemption requests.
But this wasn't enough
to calm investors.
Blue Owl's shares have fallen sharply
since the start of the year.
Industry-wide concern though
meant it was far from a
unique case.
People have been talking for years about
how private credit has been untested,
and this is the first time
that they've really been
under this amount of pressure.
Some observers have drawn
parallels with the lead up
to the 2008 financial crisis.
It has the same trappings
as subprime mortgage repackaging had.
While others say that fear is overblown,
especially since private credit
firms don't use your bank
deposits to make loans.
It's just really hard to assess
because these loans are private.
Private credit lenders will tell you
that they made really smart investments,
but the concern is that,
what if they didn't?
Good news, everyone.
Today you are going to learn
the connection between one
of these, lots of these,
and even this. Private credit.
You can think of
private credit as lending
that's not arranged by banks.
It could be an insurance company
or in many cases these days it could be a
private credit fund.
These deals are managed by some
of the biggest names in private
markets like Blackstone,
BlackRock, Blue Owl,
and even some not named
after colors, Greek gods for instance.
But what is it?
It's really a very broad
umbrella term that refers
to multiple forms of lending.
The type that's in the news
most these days is what's called
direct lending, and
that's when basically these
institutions lend money
directly to companies.
If you're a company and
you need to borrow money,
you might go to a bank,
but if you're really, really
big, a bank can't provide
that much of a loan to a single company.
So instead you go to
the debt capital markets
where a bank arranges a bond or loan
and sells it on to multiple
investors for a fee, of course.
Private credit is a way
to accomplish the same
type of transaction,
but just directly between the borrower
and the ultimate buyer of that debt.
cutting out all those like middle stages.
And it became central to
the global financial system.
Back in 2015, I think this
market was around $500 billion.
The overall assets under management
for private credit is roughly
1.8 trillion as of today.
The 1.8 trillion market
that most people talk
about is just a subset of
what some managers see as a
total opportunity of as big
as $40 trillion.
In other words, the
current market's just the
tip of the iceberg
for private credit, far
bigger opportunities
lurk underneath.
There is supply chain finance.
There is consumer auto loans, mortgages,
there is railcar financing.
There is different kinds
of trade financing,
music royalties.
We did a story last year
about them getting into things
that would've normally been
financed by municipal bonds.
A lot of lenders, especially
places like Apollo,
feel like the sky's the limit.
About two thirds
of the private debt market
is in North America.
Europe takes the next
biggest slice followed
by Asia Pacific and the rest of the world.
And you could say private
credit has been around for
decades, really.
I think the 1980s is probably
when a lot of this started,
but really back then it looked
nothing like it does today.
One event in particular
didn't so much grease
the wheels, as crashed the
car and set fire to it.
The 2008 financial crisis
led to numerous regulations
to try to keep that from happening again.
And one of the key things
regulators essentially said was
they wanted banks to
do less risky lending.
Regulators didn't
want banks to make a lot
of loans with their own money,
and that's what allowed
private credit to sort of step in
and start doing a lot of this stuff.
It can also help out
when things get choppy
in other debt markets.
For example, in 2022,
the Federal Reserve had
to start raising interest rates.
It really caused some problems
in the high-yield bond
and leveraged loan markets
and made those much harder to borrow from.
And private credit
lenders really stepped up
and they saw it as a massive
way to grow their market share.
Now, their loans can be more
expensive than traditional
financing, but borrowers often accept that
for speed, certainty,
and longer-term relationships with lenders
and software has been one
of the biggest targets
for direct lenders in recent years.
A lot of these companies have
very strong revenue growth,
but they're not making money.
That's something that banks
have a hard time financing,
but private credit can do quite easily.
- This is the S&P 500,
and since 2022, firms like
Ares, Apollo, Blackstone,
and Blue Owl have seen
their share prices generally
outperform it as they expanded
their credit strategies
and grew their assets
under management. Over that period
Blue Owl's AUM flew up from
around a hundred billion dollars
to more than 300 billion,
but something else happened
in those four years.
OpenAI is now valued at $852 billion.
Anthropics making headlines
almost on a weekly basis.
The rise of AI has
completely upended the
private credit market.
So now the spotlight is on
how much exposure private
credit firms have to software.
And so retail investors
in particular have
been pulling their money.
Shares of KKR and Blue Owl
were down as much as 10%.
Blue Owl is one of the most exposed.
And it's why investors are trying
to figure out if those
loans were underwritten
with sound principles
Or based on overly optimistic
growth trajectories that
the AI revolution could
now put in jeopardy.
Towards the end of 2025,
Blue Owl co-CEO Marc
Lipschultz was pretty confident.
Credit quality is excellent in our book,
and that doesn't mean no defaults.
Everyone's gonna have defaults now
and then, you just can't have many
and you have to get good recoveries,
and that's exactly what we do at Blue Owl.
And by the way, so do our
peers and so do the banks.
In November, though it
called off a merger of two
of its funds amid scrutiny
over potential investor losses.
It coincided with redemption requests.
That is people asking for their
money back climbing sharply
across the industry,
including at Blackstone
Blue Owl and Apollo.
There's really not a fund
that's been spared over
the last few months here.
We've seen huge funds receive
massive redemption requests
that are unprecedented in the history
of private credit markets.
A lot of the firms
that had made a big push into
the retail market have had
to deal with these redemption
requests in an amount
that was unprecedented
and to preserve the value
of the funds, they've had
to limit in many cases the amount of money
that investors could take out.
In the first quarter,
funds were enforcing caps
and denying billions of
dollars of withdrawal requests,
predominantly from wealthy
retail investors who'd sunk
capital into special
products tailored for them
by private credit firms.
In some cases, their
unmet requests were tens
of percentage points higher
than the money actually
allowed to be taken out.
This all comes years
after heavy inflows from
institutional investors
and retail-focused funds.
Much of that money going
into software businesses
that were seen as durable.
Now, AI is starting to
challenge that assumption,
and all of this is harder to judge
because the market is so opaque.
Some of the main drawbacks
of private credit is there's
much less transparency.
Private credit are bespoke loans
between sophisticated parties
and it's all private
loans, are not securities.
And crucially that privacy
means they don't really trade,
so there isn't a market
deciding what they're worth.
Skeptics have begun
questioning the accuracy
of private loan valuations, particularly
after a string of investments
recently had their values
slashed to zero with little to no warning.
It follows the collapse of
subprime auto lender Tricolor
and auto parts supplier
First Brands last year.
While only tangentially
related to private credit,
their demise raised broader
questions about underwriting
and hidden leverage
across all credit markets.
Jamie Dimon has been sort
of a vocal critic of the
private credit market, is
how I would say it.
The JP Morgan CEO was among
the bankers facing losses tied
to Tricolor, and he went
full insect in his assessment.
My antenna goes up when
things like that happen.
And I probably shouldn't say this,
but when you see one cockroach,
there's probably more.
It's a very visual image
of hidden problems coming
to the surface as as cockroaches tend
to do when lights go off.
But the bigger point
that he was making is there
could be more problems
and this could be just the beginning
and no one is really safe.
This is what led some
observers to draw comparisons to
what happened in 2008.
I think the counter argument to that is
that the regulation following
the 2008 financial crisis
intentionally pushed risky lending off
of bank balance sheets and
instead ended up with investors.
And so they can afford to lose that.
They may not like to lose that,
but they can afford to lose that.
We're not really seeing that sort
of widespread distress just yet.
But definitely I think we
can say that the best days
for private credit are probably behind us,
and the next few, quarters
years, are gonna be more
challenging.

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Bloomberg Originals

May 13, 2026

Current Market Pressures

Risks and Criticisms

How the Market Works

Hard Facts at a Glance

Takeaways

Frequently Asked Questions

How does AI affect private credit loan portfolios?

Who is Bloomberg Originals on YouTube?

Does this page include the full transcript of the video?

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