The private credit market has been in the news ever since a flood of investor redemption requests hit Blue Owl Capital. The phenomenon soon hit the asset management industry in general, with BlackRock, Oaktree, Blackstone, Apollo Global, Ares, KKR and Cliffwater limiting their investor redemptions.
In this backdrop, International Finance asked Javier Corominas, the Chief Global Strategist at Oxford Economics, what is going wrong with the industry.
Javier Corominas has over 20 years’ experience in asset management as a strategist, portfolio manager, and independent macro researcher.
In an exclusive interview with International Finance, Javier Corominas spoke about whether the private credit industry will go through a 2008-like meltdown, how funds and investors can go past the crisis, and most importantly, whether the sector requires urgent reforms.
The private credit sector has been undergoing a sort of upheaval, with companies like Carlyle, Ares, and Apollo restricting investor withdrawals. Are we going to witness a major financial meltdown in the coming days?
Javier Corominas: Our view is that we are in the early stages of a rolling crisis in private credit rather than an imminent, acute financial meltdown of the 2008 variety. The stress is real and building: Carlyle’s $7 billion Tactical Private Credit Fund reported redemption requests totalling 16% of its shares in Q1 2026, with the fund capping withdrawals at 5%, and Apollo and Ares blocked investors from getting even half of the money they wanted out of their funds — a sign of mounting strain.
However, a Lehman-style meltdown in the coming days is unlikely. Our research estimates a further cumulative 5–10% drawdown over the next two years, a painful but gradual process. The main reason a sudden systemic event is improbable is structural: private credit represents only about 3% of total US household and business debt outstanding. The 2008 crisis became systemic because bank runs and the collapse of interbank lending markets turned a bad asset class into a global catastrophe. Without a heavily leveraged, interconnected banking system sitting on top of the losses, the path to systemic crisis is far narrower. The greater risk is a slow-motion erosion—particularly through the insurance channel—that is harder to detect in real time and more difficult to reverse.
Investors are on a withdrawal spree, as concerns over loan quality, liquidity constraints, and high exposure to the software sector, threatened by AI, have arisen. What is your take on the issue?
The withdrawal spree reflects a convergence of legitimate fundamental concerns and sentiment-driven momentum. Our note is explicit that the market’s concerns are well-founded: BDC NAV gaps have materially decoupled from high-yield OAS spreads since Q3 2025, which is difficult to explain by macro factors alone and strongly suggests the stress is endogenous to private credit. The three drivers — loan quality deterioration (48% of borrowers with ICRs below 1.0x in the 2023–24 vintage cohort), liquidity mismatch in semi-liquid fund structures, and AI-related software sector exposure — are all genuine.
That said, there is also a self-reinforcing dynamic at play. The opacity of private credit portfolios amplified concerns: media stories about rising redemptions fuelled additional redemption requests in a feedback loop resembling a modern bank-run dynamic. Blue Owl’s redemptions grew each of the past three months, meaning that the blended quarterly rate obscures more acute panic more recently, suggesting sentiment is deteriorating, not stabilising.
Private credit’s high portfolio exposure to the software sector has emerged as a worry. Due to AI-related disruptions, software stocks have been on a freefall. How can funds and investors wade through the crisis?
Our note estimates 25–35% of private credit portfolios face elevated AI disruption risk, concentrated in legacy SaaS firms with seat-based pricing and business services firms facing automation headwinds. For funds and investors navigating this, several frameworks are relevant.
Funds should accelerate portfolio triage—distinguishing legacy SaaS borrowers (seat-based, back-office automation-vulnerable) from AI-beneficiary software businesses. Marks need to move proactively rather than with the usual lag: as long as redemption pressures remain contained and assets are not forced into the market, the system appears robust. However, once constraints are tested, the gap between reported and realisable values may become evident, revealing vulnerabilities that had previously been obscured.
For investors, the practical framework is: favour senior secured structures, hard covenants, and managers with enforcement playbooks; inventory redemption mechanics and gate provisions; demand disclosures on back-leverage and valuation governance. The era of ’allocate to private credit and forget’ is over. Manager selectivity and active monitoring are now the minimum standard.
Blue Owl, the worst-affected due to the crisis, had significant portfolio exposure to ’internet software and services companies’. Is this a cause for concern for private capital funds?
We think more than 70% of Blue Owl’s loans are to software companies, which makes it an extreme case. But the lesson for the broader industry is directional: funds that grew rapidly during the low-rate era by specialising in a single sector have now discovered that concentration risk in private credit is asymmetric—the illiquidity premium was supposed to compensate for higher selectivity, not lower. Broader funds are not immune.
A section of experts and analysts is comparing the private credit mess with the pre-2008 financial crisis environment. Do you agree with them?
The comparison has genuine merit on some dimensions but is ultimately imprecise in ways that matter. The parallels we draw are valid: excessive capital chasing a structurally limited opportunity set, compressing spreads, deteriorating underwriting standards (48% of 2023–24 vintage borrowers with ICR below 1.0x), rising PIK penetration, covenant erosion, and opaque valuations.
The key structural differences that make a 2008-style meltdown unlikely: private credit funds carry significantly lower leverage than the investment banks of 2007; and the contagion mechanism — through insurers rather than banks — is slower-moving but ultimately more insidious, manifesting as a grinding erosion of retirement security rather than a sudden liquidity freeze. Our view is that the comparison to 2008 is useful as a qualitative warning, but should not be taken as a prediction of timeline or mechanism.
The ongoing crisis has wiped billions of dollars from the valuations of some of the biggest investment managers. Does the industry need structural reforms?
Yes, and several reform vectors are now in motion simultaneously.
The reforms that would address the structural vulnerabilities most directly are: mandatory standardised portfolio disclosure (closing the gap between stated and actual sector exposures), stricter valuation governance, and more rigorous capital treatment for insurance-sector private credit holdings, including offshore reinsurance structures (the ’Bermuda Triangle’ we note). Whether these reforms are forthcoming in the current US regulatory environment is an open question.
US life insurers have accumulated nearly $1 trillion in private-credit investments. Should the insurance sector brace for the impact?
Unambiguously yes, and this is the transmission channel that most mainstream commentary underweights. We identify this as the primary propagation mechanism. Private credit now accounts for around 35% of total US insurer investments and close to a quarter of UK insurer assets, with PE-affiliated insurers holding an estimated $1 trillion in assets through these channels.
The growing use of Rated Note Feeder SPVs to ’optimise’ regulatory capital treatment, and the ’Bermuda Triangle’ strategy, where PE-controlled platforms originate annuity books, reinsure liabilities to affiliated offshore vehicles, and invest heavily in private credit—structures that maximised carry and capital efficiency in benign conditions but could force de-leveraging precisely when markets are under stress.
The downstream exposure falls on US pensions and retail savers holding life annuities—products that are, by design, long-duration, illiquid, and dependent on insurer solvency. This is the channel through which private credit stress, even if not systemically acute in the traditional sense, could meaningfully erode household retirement security.