The Journal. - 'Eject! Eject! Eject!' Inside the Private Credit Panic

Episode Date: May 6, 2026

Private credit was the hottest craze on Wall Street. Throughout the boom, one firm became its poster child, Blue Owl. But a recent panic posed a troubling question. What happens if investors suddenly want out at the same time? WSJ's Matt Wirz reports on the turmoil and explains why private credit is something American workers need to pay attention to. Ryan Knutson hosts.  Further Listening: - The Wall Street Craze Jamie Dimon Can’t Resist. Even If It Blows Up. - Private Equity and Crypto Could Be Coming for Your 401K Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Earlier this year, trouble showed up in the hottest corner of Wall Street. Private credit. Private credit. The boom in private credit. The private credit craze. Suddenly, a lot of investors were in a panic, and they started picking up their phones. They were all asking their financial advisors the same question. They were literally calling their brokers and being like,

how much money do I have in private credit? This question, our colleague Matt Wirtz, says, was often followed by an urgent request. Eject, eject, eject, get me out right now. And you saw massive amounts of people asking for their money back. But many of these investors couldn't get their money back, at least not right away. Private credit, a world of opaque lending without much regulation, is a more than $3 trillion market. It operates outside the traditional banking system. and tends to offer higher returns,

but also comes with higher risk. From day one, there's been skepticism about private credit. And is private credits grown? So has an underlying worry. What happens if investors suddenly want out? The worst thing for the financial system is a liquidity crisis. It's when all of a sudden, financial institutions are asked to pony up cash and they can't.

For years, Those concerns stayed in the background because nothing went wrong. And then, something finally did. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Wednesday, May 6th. Coming up on the show, Inside the Private Credit Boom, and the panic to get out. This episode is brought to you by IG Private Wealth.

When your financial life gets more complex, Having a clear plan matters. IG advisors build personalized, integrated financial plans that connect your investments, tax strategies, retirement income, and estate planning into one coordinated plan. They will help you make confident decisions about your wealth and your future. Get financial advice that puts you at the center. Visit IGprivatewealth.com to find an advisor near you. Private credit is one of the biggest things on Wall Street right now.

If you don't work in finance, though, it can be kind of hard to. wrap your head around. Our colleague Matt Wirtz writes about private credit, and when he tries bringing it up with friends? Well, for a long time, it was like nothing. It was just like, like, I'm sorry that that's your job. I was just like, okay, let's move on and what do this weekend. But then there's that awkward pause where it's like, what is that? So what is private credit? Okay. What is private credit? Sorry, bear with me a second. I could try to free ball it, but I came up with, like, what I think.

Actually, I think the easiest way to understand private credit is to go back in time a bit, back to the aftermath of the 2008 financial crisis. The way banks work is pretty simple. They take in deposits and then lend that money out at a higher interest rate and profit on the difference. In the years before 2008, banks made a ton of loans that they probably shouldn't have. they were risky, subprime mortgages and all that stuff. And when those loans went bad,

the scope of this fall, breathtaking. It nearly brought down the financial system. First, Bear Stearns, now Lehman Brothers and Merrill Lynch. One by one, the pillars of the financial world began to fall. After the crash, regulators passed a bunch of new laws to prevent that sort of thing from happening again. And so what that meant was those banks couldn't make a lot of the loans that they had been making that were pretty high yield,

are risky and led to very large bonuses for those people on Wall Street. Well, they didn't exist anymore. But the market for those riskier loans didn't go away. Loans just moved. A lot of the smartest guys on Wall Street and gals started to leave those banks, and they were looking for alternatives. This is where private credit comes in. It's a system where private firms can issue loans or credit to risky borrowers without

being subject to all those pesky banking regulations. When they first started doing large loans to large companies, they were called shadow banks. These days, they call it private credit. Unlike banks that lend out money that depositors put in bank accounts, private credit firms lend out money that's given to them by investors, investors who are hungry for big returns. And it pays a pretty high yield,

like it would pay anywhere between 8 or 9% a year on the low end. and it could pay up to like 15% on the high end annually. So everybody wanted it in, and it just kind of exploded. Over the last decade, private firms like Apollo, Blackstone, Ares, and KKR built massive lending businesses, and money poured in fast. At first, it mostly came from big institutions like university endowments and sovereign wealth funds, but one firm figured out how to grow even faster. Live from Post 9 is Lou Owl Capital CoCity.

Oh yeah, Blue Owl was like the OG. Blue Owl, the company at the center of the private credit boom. We look at you as sort of a proxy for a private credit, direct lending, that's your business. The two founders, Doug Ostover and Mark Lipschultz, they're rainmakers. What's the environment right now? Fortunately, the environment is good. They're incredibly good at sales, incredibly good at raising money from insurance, insurance companies, pensions, endowments, etc.,

they wanted to prove that they could be big dogs. They could start their own thing and get really big, really fast. Blue Owls' big innovation was to go after a new kind of investor. Okay. What happened is they realized there's this whole other source of money that we can raise funds with that most of our competitors haven't really looked at yet, and that's individual investors, what's called the mass affluent.

Blue Owl started eyeballing the estimated 16 million wealthy households who comprise America's growing affluent class. People like dentists and lawyers. To reach them, Blue Owl charmed their financial advisors, pitching their services at stake dinners. And it worked. Ostrover and Lipschultz became billionaires. I was like, oh my God, these guys are killing it, right?

I guess that was 2019, right, or 2020, they were at 15 billion. These guys now run $300 billion. I mean, it's, it was a hockey stick. By the early 2020s, Blue Owl had become the poster child of the private credit craze. And soon, the rest of the industry started copying their model, pushing private credit beyond institutions and into the hands of individuals. With its billions in cash, Blue Owl continued to do what it was built to do, lend it out. So what kinds of companies were they lending to?

The bulk of their business is making loans to companies. You know, some of them are like food companies, right? And some of them are like related to housing and consumer goods, right? Retailers, dollar store type retailers and high-end retailers as well, pharmaceutical companies. But what they really liked, they really liked Ryan, is software. Because software companies are often really profitable. You make one technology, you can sell it around a bunch of places,

and you can scale it up and make a ton of money. And that's exactly it. High margin business, Ryan. A lot of other private credit firms were pouring money into software, too. And for a while, the strategy was working and delivering solid returns. But while software can be highly profitable,

it was vulnerable to a technology that a lot of people didn't see coming. AI coding tools. The cost of building custom software, it just collapsed. AI is going to replace software. Anthropic has, It's this AI Claude that can start replacing business software.

Claude raising questions about how fast AI and cloud models could disrupt software, which is the very... And you start to see stocks of software companies get hit. Shares of Adobe, which have fallen about 26% in the last year, and then there's Salesforce, now down 10% in 202026. And so it was particularly problematic for private credit funds, like Blue Owl. investors knew that Blue Owl was heavily concentrated in software companies, whose shares were now tanking. And many of those investors... They hit eject. But when investors asked for their money back, their money wasn't just sitting there, ready to be withdrawn.

It had already been lent out to companies, locked up in loan contracts that weren't supposed to be paid out for years. It's in the fine print of all these funds. They only have to pay out 5% each quarter. Ah, and so if I want all my money back, but sure, you can get all your money back. But if thousands upon thousands of people ask for it at the same time, vocative 5%. Correct. You're only going to get 5% of your money back.

Private credit firms say the limits on withdrawals are there to protect their remaining investors and keep the funds stable, basically to prevent the private credit version of a bank run. But this 5% limit didn't sit well with a lot of investors. And as they race for the exits, Blue Owl tried to calm things down. What did they do?

Well, Blue Owl did what I think they thought was the right thing and something that they thought the market would appreciate, but instead, it just threw gasoline on the fire, and things got way worse really fast. That's next. Blue Owl needed a fix, and fast. Investors were getting nervous about the companies

that had lent money to. At the same time, more people were asking for their money and more than just the 5% that they were contractually entitled to. So in January, Blue Owl executives made a decision. They would break their own rule. And so senior management at Blue Owl are faced with this choice. We can either hold the line at 5% or we can go over 5%. And so what they decided to do would say,

you know what, we'll pay triple what they would have to do under the fine print of their contracts. And they thought that that would calm everybody down. triple. And so did that work? It totally backfired. According to Matt's reporting, Blue Owl hoped that raising their redemption limits would be a show of confidence. But to investors, it was anyone's guess when the gate might come crashing down again.

People were like, wait, I thought it was 5%, but now they're paying 15%, like, should I, can I get more? I should, okay, oh my God, like what's going on? I don't know what the rules are. There's just a lot of confusion in the market. And one thing that market hates is uncertainty. You know, Blue Owl was trying to provide certainty. They were trying to show, look, we have the money, we're going to pay you out. And instead, it did the opposite.

Requests to pull money out surged. On TV, Blue Owl's co-founder had been defending his firm. There's almost this kind of this mass hysteria taking hold about credit in general, private credit in particular, and it's just not anchored in any facts. Lipschultz argued that there was a gap between the negative discourse, and how the loans were actually performing. Private credit, not just Blue Owl, our peers are very good at what they do. But those reassurances only went so far.

By late February, financial advisors were feeling the pressure. Their clients were confused about how much money they could pull out, and they didn't know what to tell them. So they started asking Blue Owls executives what to say. The next month, some first quarter data came out. And like, blam-o. Blue Owl experiencing elevated redemperienced. Reemption Request for two of its private credit funds in the first quarter.

The numbers are pretty shocking, I would say. Blue Owl got redemption requests of 41% for its tech-focused fund. And the biggest fund investors in it requested 22% back. It's massive. You know, it was $5.4 billion requested. Requested. Meaning that's not actually how much money people got back, right? That's just how much money they asked for.

Correct. As withdrawal requests piled up, the company reversed course and went back to its tighter 5% redemption limit. Meanwhile, the stress was showing up in Blue L's stock price. Shares had fallen hard, down about 40%. They ticked up a bit after earnings last week, but they're still far below where they were earlier this year. Okay, we've been talking about the money going out the door,

but what these companies are really focused on is the money that's coming in the door. That's what their stock value is based on, how much money is going into their funds. And that number has fallen. And that is really dangerous for these firms because their valuations and their ability to do business is based on raising new money. After the latest earnings, Blue Owl said its assets actually grew, even as some investors were trying to get out. While all this was playing out at Blue Owl, other private credit firms were facing similar troubles. For weeks, redemption requests were picking up at Apollo Global Management, Blackstone, and Cliffwater.

Jitters were building, especially because of AI's impact on software. But it was the chaos at Blue Owl that made those fears impossible to ignore. People talk to each other, like at the golf course in January, and I was told this, actually, by some of my sources. This was all anybody was talking about, because they were hearing about it from their friends. You know, wealthy people hang out with wealthy people, and it set off a chain reaction. So we saw investors in both retail funds from Aries and Apollo tried to pull out more than 11% of assets. Barrings now joins Apollo, Blackstone, Ares, and Blue Owl, a business development company at the center of much of the latest redemption upheaval.

By the end of the first quarter, investors had asked to pull out nearly $20 billion from private credit funds. They got about half of that money back. This seems like a lot of chaos. is doing anything to try to rein this in it all? The craziest thing about this is like, right now the major governmental initiative around private credit is not to rein it in, but to like turbocharge it. And it's happening at the worst possible time for these firms. That's because at the exact moment that all this stress is showing up,

the push from Washington isn't to slow private credit down. It's to make it easier for the industry to reach even more people. New proposed regulation is underway to open up private credit to 401k retirement plans. This is really important, particularly if you're a retired person, because President Trump signed an executive order in August instructing the Department of Labor and the SEC to find a way to make it easier for private credit and similar products to be put in 401Ks. So we all might be invested in private credit pretty soon, and we might not even know it. Why, why? Why? Why would private lenders be interested in retirement savings plans?

Because it's massive, right? I mean, it's trillions and trillions of dollars. And as a fund manager, you get paid based on your assets under management. You get a percentage. You get a fee on that, right? So you just want to grow that as big as possible. And this is like the holy grail. It's the biggest, like, concentrated. piece of wealth in the country. There's over $14 trillion sitting in Americans' retirement accounts. They have spent years, like some of them decades, trying to get these funds into 401K programs,

and they're almost there. The private credit system was originally designed for big institutions that can afford to leave their money loan for years, the kind of investors who can wait until the loan gets paid off. Now, it's being sold to people who maybe can't. You know, as an individual, I have life events that come up, right? And I can plan for them as best I can. But at a certain point in time, like, you know, whether it's sending a kid to college, buying a house, taking care of a loved one that has some kind of medical issue come up,

losing a job. There's lots and lots of reasons why financial plans might change. And when they do, you know, I need my money back. And this is the part that's easy to miss. Because as it potentially gets easier to access private credit. Once your money goes into one of these funds, it might not be so easy to get it out, and times are bad. I was speaking to one guy. He is in his early 70s. I think of him as like a stereotypical private credit fund investor individual.

He was an engineer. Then he became an executive. And now he's got these investments that he can't really get out of. And to be honest, he's not even sure that he does want. to get out. He just, he feels nervous about the fact that he can't if he wants to, if he needs to. That's the thing. These things were built with limits on how quickly you can get out. So now it's just this kind of like angsty waiting game. That's all for today. Wednesday, May 6th. The journal is a co-production of Spotify and the Wall Street Journal.

Additional reporting in this episode by Anna Maria Andriotis, Peter Rudigier, and Greg Zuckerman. Thanks for listening. I will see you tomorrow.