Tentative though it is, the ceasefire in the Middle East lifted stock indices on Wednesday as investors cheered reports that the Strait of Hormuz could be reopened as early as this week. It’s going to take more than that, however, to restore confidence in those corners of the market that have taken a particularly heavy pummelling in recent weeks.
The private credit industry, an increasingly crucial part of the US financial system, is a prime example.
As Cantillon noted about a month ago, long before the US and Israel began their bombing campaign in Iran, shock waves were already being felt in the world of non-bank lending. Just before Christmas, there was the implosion of US firms First Brands and Tricolor, which both utilised private credit heavily. In February, then, it was the collapse of UK non-bank mortgage lender Market Finance Solution.
More recently, the name Blue Owl Capital has become synonymous with the sector’s woes. On Wednesday, ratings agency Moody’s slashed its outlook on Blue Owl’s flagship fund to negative. That followed last week’s disclosure that the firm, which is aimed largely at retail investors, was limiting withdrawals from two of its funds amid a spike in requests from investors. Blue Owl Credit Income Fund received requests from investors to cash out on 21.9 per cent of its outstanding shares, but redemptions were capped at 5 per cent.
“We now expect elevated redemptions to persist in coming quarters, and inflows could slow further from already reduced levels,” Moody’s said.
The issues aren’t contained to Blue Owl and its funds, however. According to Bloomberg, the $1.8 trillion private credit industry is facing an “exodus” of investors, who have looked to withdraw an estimated $13 billion from a dozen funds in the first three months of the year.
One person who isn’t panicking about it just yet is Jamie Dimon. In his annual shareholder letter, the JPMorgan Chase boss said this week that the sector’s losses will be higher than many expect, but that they probably won’t present any systemic risk. How reassuring.
Observers of a more anxious disposition will be keeping a weather eye on developments within the industry.
