Back in summer 2024, while everyone was glued to the Olympics and the presidential election, a few voices were warning about a risk building quietly in the financial system. Private credit — a $3 trillion corner of lending that operates outside traditional banks — was getting too big, too fast, and too opaque.
Now those warnings are playing out in real time. In the past month alone, we’ve seen BlackRock cap withdrawals on a $26 billion fund, Blackstone tap executives for $150 million to meet redemption requests, and Blue Owl permanently freeze redemptions on a retail fund. Ares and Apollo followed suit, limiting investor exits to just 5% per quarter even as withdrawal requests topped 11%.
This is the shadow banking moment that veterans like Jamie Dimon and Lloyd Blankfein have been signaling. Private credit exploded after 2008 when regulators clamped down on traditional banks, and the money flowed to borrowers that were never especially strong to begin with. Then interest rates surged, financing costs jumped, and many of those companies are now stuck trying to survive in a much harsher environment.
Moody’s just downgraded one KKR private credit fund to junk status. UBS is forecasting default rates could hit 15% in a worst-case AI disruption scenario. And Goldman Sachs warns that former CEO Lloyd Blankfein is right — markets could soon face a reckoning stemming from private credit.
The extend and pretend strategy — where lenders restructure loans and push problems into the future — only works for so long. When you see one cockroach, as Dimon famously said, there’s probably more. Wall Street is trying to manage this carefully, but withdrawal caps and frozen redemptions are exactly the kind of warning signs that appeared before 2008.
Private credit isn’t going to zero overnight. But investors need to understand that this is a liquidity test happening in real time, and the cracks are getting harder to ignore.
