February 27, 2026
The recent liquidity event involving Blue Owl Capital has raised broader concerns about the rapid growth, limited transparency, and structural complexity of the private credit market.
Private credit has expanded significantly—driven by institutional demand and increased retail access—but rising leverage, tight interest coverage, and concentrated exposure to technology and software are increasing vulnerability to macro and liquidity shocks.
Although risks such as opacity, illiquidity, and potential contagion through interconnected markets (including CLO structures) are meaningful, the overall impact remains uncertain, reinforcing the importance of disciplined due diligence and a long-term investment approach.
Due to the complexity of the private credit industry, this weekly piece will be divided into two sections. Part I will provide an overview of the current private credit market landscape, while Part II will examine the impact of private credit on the technology and software industries, as well as its potential implica- tions on the broader market.
Back in 2008, Warren Buffett was asked why he did not participate in the residential mortgage-backed securities (RMBS) frenzy. His response captured the complexity of structured products at the time: “If you take one of the lower tranches of the CDO (Collateralized Debt Obligations) and take 50 of those and create a CDO squared, you’re now up to 750,000 pages (of contracts) to read to under- stand one security. I mean, it can’t be done. When you start buying tranches of other instruments, nobody knows what the hell they’re doing” (Warren Buffet, 2008). In other words, the structures had become so layered and opaque that very few inves- tors truly understood what was inside these assets. Well, something is now bringing those comments back to life.
A week ago, markets reacted to the news that Blue Owl Capital, a $307bn alternative investment manager, halted investor withdrawals in some of its private credit funds. But let us take it step by step.
Broadly speaking, they are any investments outside traditional public equities and fixed income. This universe can range from bitcoin to gold to hedge funds to collectibles, like art or a Rolex watch.
Unlike publicly traded bonds, private credit consists of loans originated by non-bank institutions, in this case, a firm like Blue Owl, and extended directly to companies. These loans are not listed or traded on public markets, meaning they cannot be easily valued, bought, or sold.
Because private credit investments are illiquid, many funds offer only limited liquidity windows (for example, quarterly redemptions up to a certain percentage of assets). If redemption requests exceed those limits, the manager can suspend or limit withdrawals. In simple terms, investors who want their money back immediately may have to wait a bit.
So, why would a $1.4bn private credit deal, as is currently the case with Blue Owl, result in comparisons with the Great Financial Crisis of 2008? Well, take a seat and enjoy the ride.
Private equity and private credit strategies trace their roots back to the 1940s, when Georges Doriot founded American Research and Development Corporation, widely considered to be the first modern private equity firm. Since then, these strat- egies were only largely accessible to institutional and qualified investors, who could commit millions of dollars to a single fund and tolerate long periods of illiquidity. After the Global Financial Crisis, tighter banking regulation, particularly under Basel III, led banks to reduce lending to middle-market compa- nies. In that environment, private lenders stepped in to fill the financing gap, marking the beginning of the modern private credit industry. Like the early days of private equity, these funds primarily targeted institutional investors capable of supporting illi- quidity periods of five to ten years.
However, at the start of this decade, the landscape began to shift. With the launch of the Blackstone Private Credit Fund (BCRED), an industry once designed for large and sophisticated investors expanded into the wealth channel, allowing retail investors to access private credit with minimum commitments of only a few thousand dollars. This evolution introduced a key structural change: peri- odic liquidity windows, designed for investors who could not tolerate multi-year lockups. Since then, the industry has grown rapidly in assets under management. As of early 2026, estimates suggest that global private credit assets are approaching
$1.8 trillion, representing close to 2% of global GDP. North America alone accounts for nearly $1.1 trillion of that total.
Where is all this capital deployed? Essentially, everywhere. Private credit funds specialize in lending directly to private companies across sectors and geographies, meaning that a loan originated by firms such as Blue Owl could be financing anything from a software company to the neighborhood restaurant down the street.
So why would 31.4 billion in assets be enough to unsettle a 31.8 trillion industry?
The short answer: opacity.
The main structural challenge in private credit is the limited transparency of these portfolios. Because they are made up of loans to private companies, there is no real-time pricing like in public bonds or equities. Valuations are usually updated on a quar- terly basis, and portfolio updates are released on that same schedule. Most of these loans are originated directly by the asset manager, and the valuations are also produced internally using proprietary models and assumptions. Regulators require funds to audit their financial statements and valuation processes, but they generally do not require a loan-by-loan external audit of the underlying assets. As a result, investors rely heavily on periodic reporting rather than continuous market pricing.
In the recent case involving Blue Owl, one of the largest private credit managers in the world, the firm sold roughly $1.4 billion in assets to meet investor liquidity needs. The transaction involved assets across three different funds and included exposure to approximately 230 private companies. With limited public details on the operation, market assumptions were that a large portion of these loans were tied to the software sector. While Blue Owl stated that this was a normal portfolio management transaction, the situation, combined with similar concerns to the ones expressed by Buffett back in 2008, started to raise broader questions by market participants. A UBS analysis showed that, while private credit defaults remain contained at 3%–5%, leverage has risen to
7.5–8.0x debt-to-EBITDA and interest coverage remains tight at 1.7–1.8x. These trends suggest rising stress and increasing vulnerability to macro or liquidity shocks. With thousands of private loans originated and valued within private structures, inves- tors are beginning to ask: are we standing on top of a $1.8 trillion volcano that’s about to erupt?
In Part II, the focus shifts to sector concentration. As seen in the Blue Owl transaction, a meaningful share of private credit exposure is linked to the technology and software industry; traditionally viewed as a coun- tercyclical space. Lately, however, with AI-driven capital needs rising quickly, we will explore how increasing funding requirements could start to reveal more cracks within the private credit world.
As we can see in the chart, the technology and soft- ware industries constitute approximately 20% of the total loans issued by the private credit market, second only to real estate. This relatively large slice of the private credit market could be either prom- ising or alarming; it is a matter of opinion. On one hand, there are plenty of development-stage companies participating in the artificial intelligence boom that need funds to turn their products and services into successful businesses. The nascent technologies space tends to operate in this way. Many of the world’s most successful technology companies had humble beginnings, some even starting in garages or college dorms. On the other hand, for every small company that proved to be triumphant, there were countless others that failed. It is natural that every portfolio will have assets that prove successful and others that do not. However, private credit funds do not have to disclose the holdings in their portfolios. Therein lies the risk of the overconcentration of loans in the technology and software industry, or any industry for that matter; since investors sometimes cannot truly examine what they are buying, it is hard to truly understand the level of risk exposure to a partic- ular industry.
According to Blue Owl, only approximately 13% of the loans involved in its most recent fund asset sale were exposed to the software sector. In a bid to defend the funds’ credit quality, management also stated that the firm only sold a “strip” constituting 35% of the total assets in the vehicle, retaining the 65% stake in the balance of the loans. The allusion was that if the sale in question was motivated by low credit quality, the position would have been sold in its entirety. This very well might be true, but again, given the inherent difficulty in assessing the actual loans themselves, investors tend to sell first and ask questions later, especially retail investors, who tend to have shorter investment time frames. Given the backdrop of an already jittery market, driven by concerns of AI disruption of the software industry, investors, used to the liquidity of public markets, got nervous at the relative illiquidity engendered by the fund’s poorly-executed and communicated wind down. In retrospect, it appears that Blue Owl attempted to provide retail investors with access and liquidity to a product structure traditionally designed for long-term-oriented investors. This would be akin to offering transatlantic travel by cruise ship to someone used to traveling by air. Both forms of travel will get you there, but each is meant for a very different kind of traveler, and problems can arise when expectations are misaligned. Given the opaqueness and illiquidity of its fund’s assets, coupled with an already skittish market towards the software industry, investors’ negative reaction to the current situation could serve as a costly lesson for Blue Owl, and the industry in general; do not try to fit a square peg in a round hole.
The market is a fickle friend, so it is possible that in six months the Blue Owl saga could very well be forgotten. However, if the cracks are truly founda- tional, the potential implications for the private credit industry in general could be meaningful. At the top of the potential risks is that of contagion. As we said before, in an environment where clarity is hard to come by, nervous investors tend to sell first and ask questions later. We have seen this most recently in the software industry, where software-related ETFs dropped more than 30% over a period of four months, given the lack of clarity surrounding AI’s impact on this industry. This fear is now spreading from public equities to private credit markets, exacerbated by the latter’s concentration in the technology and software industries. In a recent report, UBS stated that history shows “…how concentrated defaults can drive market-level default rates. One sector can account for 55-80% of market level defaults.” (Matthew Mish,UBS/2026). Compounding this issue is the fact that private credit is now widely owned across the financial industry. UBS estimates that the largest 20 direct lenders make up the largest portion of the private credit market yet also hold meaningful posi- tions in the leveraged-loan and high yield bond markets. Many of these loans have been issued in the technology and software space, so a problem in this industry could have repercussions across various credit markets.
Due to the interconnectivity between markets, a fire in one could quickly spread to others, but sometimes embers are hard to spot. In the case of private credit, a potential source of tinder that could theoretically ignite a larger fire is the CLO market. In essence, CLOs or Collateral Loan Obligations, are pools of loans that are purchased by credit managers, then
repackaged and sold off to investors in different tranches, usually classified by underlying asset quality. CLOs provide market depth and breadth to both lenders and investors alike. However, the fact that individual loans get pooled together, repack- aged, and then distributed in different groupings adds to the opaqueness of an already complex market, increasing its potential risk. Additionally, the degree of leverage employed in CLO structures can sometimes be multiples over the original vehicle’s leverage issued by private credit, so investors in these structures could potentially hold instruments with much higher sensitivities to defaults than expected. Many times, CLOs are purchased by banks, insurance companies, and pension funds, so loans issued by one market – private credit, for example – could end up embedded in a high leverage vehicle on the balance sheet of an insurance company, making these loans harder to track and impact different financial institutions. A concern recently brought to light by Barclays in the wake of the Blue Owl saga is the possibility that some of the loans sold off by the firm could eventually find their way back to its own CLO portfolios, magnifying their risk.
The potential risks involved in the world of private credit, especially as they pertain to the technology and software industries, are very real. Additionally, if Blue Owl is unable to contain its current issues, the implications for that firm could be significant. However, we would be remiss if we did not point out that the headlines revolving around the private credit industry issues appear at times, overdone. Over the past few weeks, we have seen media outlets take a single statement presented as part of a multi- faceted Wall Street report and turn it into the alarming headline of a subsequent news article. Additionally, we are also seeing comments from hedge fund managers calling for the unravelling of the private credit industry in one breath yet offering to buy loans in the same market, at a discount, with their next one. To be clear, we are not trivializing the current and potential issues present in the private credit markets, particularly for Blue Owl.
Where there is smoke, there tends to be fire, and the implications of a fire in this segment of the market are meaningful and potentially far-reaching. However, we have also seen widespread reactions, from analysts and investors alike on this issue, ranging from “the sky is falling on the private credit industry” to “this is nothing but a smear-campaign on the private credit industry by its competitors”. The truth likely lies somewhere in the middle. The important thing to keep in mind is that investors need to carefully consider the potential risks at hand before investing in this segment, but at the same time avoid making emotionally charged decisions based on the latest headline. Successful investing in private credit markets is predicated on meticulous due diligence, careful risk management, and a long-term approach.
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