Many Wall Street experts are concerned that even Blackstone, the world's largest private equity firm, has not escaped investor redemption requests.
The impact is considered greater than the previous redemption crisis at Blue Owl, a newer asset manager. Large institutional investors such as insurers and pension funds—most attuned to global capital conditions—and high-net-worth individuals most sensitive to distress signals have turned away.
Experts warn that a fund run in the $1.8 trillion private credit fund market could increase losses at financial institutions that are major investors and block funding for borrowing companies, potentially triggering systemic risk.
On March 3, major investment banks forecast the Blackstone redemption crisis will not be an isolated event.
UBS warned in a report: "If 14.5% of capital flows out of Blackstone funds this year, fee revenue will decline by 1%. Even if redemptions proceed normally without liquidity problems, investors may react negatively."
JPMorgan noted: "BCRED is Blackstone's flagship private credit fund, and redemption requests of 7.9% of assets have increased significantly from 1.8% in Q3 and 4.5% in Q4 last year. Redemption requests also rose broadly in Q4 for similar products at major private equity firms including Apollo Global Management, Ares Management, and Blue Owl Capital, so deteriorating sentiment is not unique to Blackstone."
Private credit funds grew rapidly as an alternative after major commercial banks raised lending barriers following the financial crisis. However, excessive credit accumulation surfaced last September and October when auto parts giant FirstBrands and subprime auto lenders Tricolor and PrimaLend filed for bankruptcy in succession.
JPMorgan CEO Jamie Dimon, who suffered significant losses at the time, warned: "If you see one cockroach, there's probably more." Bank of England Governor Andrew Bailey expressed concern it "could spread into a global financial crisis."
Major investors in private credit funds include institutional investors seeking long-term stable returns, such as insurers and pension funds, as well as high-net-worth individuals including family offices.
According to a November report from Moody's, even relatively conservative U.S. insurers held about 18% of total bond investments in illiquid bonds such as private credit as of late 2024. Insurers purchased approximately 23% illiquid assets among total bond acquisitions in the first half of last year.
Reuters reported: "Blackstone's BCRED is a fund in which more than 25 senior executives have invested. About 24% of Blackstone's $1.27 trillion in assets under management belongs to wealthy individuals."
This year, private credit distress concerns have combined with AI challenges, creating a new dynamic. Anthropic's launch of "Claude Coworker" on January 12 particularly ignited the private credit market.
Prospects that agentic AI like Claude Coworker could replace most service industries surged, causing software stocks—a major private credit investment sector—to tumble daily.
On February 19, Blue Owl Capital, a major private equity firm with strength in private credit, announced it would sell $1.4 billion in assets from three funds to meet redemptions and debt repayments.
UBS recently forecast that private equity-owned software and data services companies could face $75 billion to $120 billion in distressed leveraged loans or private credit this year due to AI threats.
Bloomberg analyzed business development company filings managed by seven major private credit investors including Sixth Street, Apollo Global Management, Ares Management, Blackstone, and Blue Owl Capital. It found at least 250 investments classifiable as software were not categorized as software loans.
Distress concerns are also emerging from AI itself. Questions arise whether AI data centers being built competitively by Big Tech will exceed demand at some point.
Energy supply for data centers could become more expensive due to overall energy price surges from the Iran conflict. Accounting firms also note that data center lease contracts have not been recorded as liabilities on balance sheets, which could become problematic.
The New York Times assessed: "Lending problems at giant private equity firms are raising concerns about a 'bank run.' Now almost everyone on Wall Street—major private equity firms, investment banks, and hedge funds—has entered a grim game of speculating who will be pushed out of the market next and how."