Warren Buffett, widely regarded as one of the greatest investors of all time, warned that risks in the private credit market — a growing source of anxiety in financial markets — could spread to the banking system.
In a program aired on CNBC on Monday, Buffett said, "Everyone in the banking system affects each other, and a problem that occurs in one place can spread to another," noting that financial institution stress can transmit rapidly. He added, "If someone yells fire in a crowded theater, everyone runs, but it's still better to be the first one to the door."
Asked whether the private credit market is troubled enough to cause concern, he said, "I don't really know, but I want to be prepared for any situation," mentioning a strategy of holding cash and investing in short-term Treasury bills issued by the U.S. Treasury Department.
Buffett's remarks came amid growing concerns on Wall Street over private credit risks. The private credit market, estimated at up to $3 trillion (approximately 4,519.5 trillion won), has weathered a period of high interest rates, and concerns over loan defaults have intensified recently as expectations spread that artificial intelligence could disrupt the software industry. The software sector accounts for as much as 30% of private credit lending, making it a significant exposure. Adding to the controversy, some private credit borrowers including auto parts companies have filed for bankruptcy. Private credit managers such as Blackstone and Blue Owl Capital have been capping fund redemptions at around 5% of assets to fend off potential fund runs.
However, regarding stock market turbulence caused by high oil prices stemming from the Middle East conflict, Buffett emphasized there is no need to be shaken. "Since I took control of Berkshire Hathaway in 1965, the stock price has fallen more than 50% three times," he said. Buffett stepped down as chief executive officer of Berkshire Hathaway at the end of last year but retains his position as chairman of the board, and said he comes to the office every day and remains involved in major decision-making.
Separately, in an interview with CNBC aired late last month, Buffett argued that the Federal Reserve should lower its annual inflation target to 0% rather than 2%. His reasoning was that the current 2% target effectively tolerates inflation rates higher than that level. He also praised Apple CEO Tim Cook's leadership but drew a line, saying, "The price level could reach a point where Berkshire Hathaway might buy Apple in large quantities again, but now is not the time."