Private Credit’s Pain Will Be the Market’s Gain

When Edward Jenner inoculated an eight-year-old boy with cowpox in 1796, the principle was radical: Expose a healthy body to a mild, manageable version of harm, and it builds the defenses to survive something far worse. The cowpox patient never got smallpox. Markets work in much the same way.

The recent headlines on private credit have been alarming. More than $4.6 billion of investor capital is now trapped behind withdrawal limits, with investors having sought to pull roughly $13 billion from over a dozen such funds last quarter. Apollo Global Management Inc., Blackstone Inc., BlackRock Inc., Ares Management Corp., Blue Owl Capital Inc., Morgan Stanley and Cliffwater have all been caught in the crossfire. The private credit default rate hit 5.8% through January, according to a Fitch Ratings report, including extend-and-pretend events like maturity extensions and payment-in-kind, which while not legal defaults generally indicate severe financial stress.