By Martin Baccardax
The problem with trying to heed a warning from the nation's most important banker, who is worried about rivals doing "dumb stuff" reminiscent of the 2008-2009 financial crisis, is that the stuff in question is really hard to see.
And that might be an even bigger concern than the risk itself.
JPMorgan Chase CEO Jamie Dimon, the personification of Wall Street's early warning system, told an investor event in New York on Monday that "there's always a surprise in a credit cycle" that can escalate into a larger financial crisis.
He added that some of the "dumb stuff" he saw during the 2008 crash, where lenders chased returns while ignoring risks, is starting to resurface. "My anxiety is high over it," he said.
The $3 trillion private-credit market is the latest corner of the global financial system to be caught up in the downdraft of selling tied to the artificial-intelligence investment trade. But, unlike the meltdowns in software stocks, or the pullback in the so-called Magnificent Seven tech giants, the private-credit crunch is much harder to track. It is even more difficult to evaluate.
"Our concerns have always been based on the fact that private capital experienced fast growth during the 'cheap money' years and remains opaque," said Deutsche Bank analyst Luke Templeman.
On the face of it, big downside moves in shares of some of the biggest names in the sector, such as Blue Owl Capital, Blackstone, and Apollo Global Management, make sense.
They, along with other private-equity and asset-based lenders, have taken up the slack from a decades-long retreat from corporate bond sales by the country's biggest banks. Beyond the day-to-day gaze of public markets, they have built enormous loan portfolios, tied in part to a wave of deals that saw some 1,900 software companies, worth over $440 billion, taken private between 2015 and 2025.
The rush to build AI-powering data centers, and the staggering amounts of capital it requires, has added another element to their business models over the past two years. The issue is that now, the sheer amount of money provided extended to hyperscalers, neo-cloud providers, and a host of others is putting the lenders under strain.
The Invesco Global List Private Equity ETF, the de-facto sector benchmark, has fallen more than 14% since the middle of last month, paced by a near 20% drawdown in Blue Owl. But that may not tell the entire story.
"When public software stocks fall, shareholders lose money. That's painful but it's transparent, it's liquid, and price discovery happens in real time," said Jason Lemkin, founder of SaaStr Fund, a venture capital group.
"Private credit is different," he said "These are illiquid loans, often held to maturity, valued by the lenders themselves -- who have every incentive to delay recognizing problems."
He notes Bloomberg data suggesting around $18 billion in tech company loans have fallen into "distressed" trading levels over the past month, the most in three years, taking the overall total to around $47 billion.
Headline risks are mounting, as well.
A report last week suggesting Blue Owl was struggling to find lenders for a $4 billion data center project tied to CoreWeave, given its current debt levels and sub-investment grade rating, added to the mix, though Blue Owl denied that it had faced financing issues on the project. CoreWave said the project was fully funded.
And the fact that Blue Owl changed the terms of exit from a retail fund tied to software and infrastructure bets, and sold $1.4 billion of its assets, didn't help.
Former Pimco CEO Mohamed El-Erian went as far as to ask in a LinkedIn post if the moves were a "'canary-in-the-coalmine' moment, similar to August 2007?," when BNP Paribas froze three funds tied to the U.S. housing market a year before the financial crisis.
A further concern is the fact that indexes that track investment-grade and high-yield credit spreads, or the difference in yield that investors demand to hold riskier corporate bonds instead of U.S. Treasuries, aren't flashing any sort of warning signal.
In fact, both gaps are holding near historically low levels. Recent data suggested a spread of around 70 basis points, or hundredths of a percentage point, for investment-grade debt, and 90 basis points for high-yield paper.
This mismatch, where public markets show muted concerns but private-lender stocks are getting pummeled, was a big enough concern to find its way into the minutes of the Federal Reserve's January policy meeting.
"In their discussion of financial stability, several participants commented on high asset valuations and historically low credit spreads," the minutes say. "A few participants commented that the financing of the AI-related infrastructure buildout in opaque private markets warranted monitoring [and] several participants highlighted vulnerabilities associated with the private credit sector and its provision of credit to riskier borrowers."
Dimon warned back in the autumn, when a couple of subprime auto lenders were in the market's crosshairs, that "when you see one cockroach, there's probably more." The Fed minutes could amount to a reiteration of the same concern, couched in the cautious language central bankers seem to love.
But if the metaphorical cockroaches aren't scurrying around on the floor, but instead nesting behind the walls, you might not see them at all. Until it's too late to get rid of them.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 24, 2026 14:13 ET (19:13 GMT)
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