MW Blue Owl's private-credit stumble revives fears of another Bear Stearns moment
By Laks Ganapathi
This is not yet a repeat of 2008. But dismissing it as a nonevent would be a mistake.
Cracks appearing in the private-credit market shouldn't be ignored.
What happened at Blue Owl should grab every investor's attention.
Blue Owl Capital, one of Wall Street's biggest private-credit managers with more $300 billion in assets, permanently shut the door on investor withdrawals from one of its retail-focused funds and ended quarterly redemptions. If you had money in Blue Owl Capital Corp. II, you can no longer ask for it back on your own terms.
Market reaction was swift. Blue Owl's stock (OWL) cratered by roughly 10%. The damage spread to other industry players - shares of Apollo Global Management $(APO)$, Blackstone (BX), KKR $(KKR)$ and Ares Management $(ARES)$ also declined.
Mohamed El-Erian, one of the most respected voices in global finance, publicly asked whether this was a "canary in the coal mine" moment for private credit. Dan Rasmussen of Verdad Capital went further, declaring the private-markets bubble is "finally starting to burst."
So which is it?
Blue Owl is a warning
When too many people rush for the exits in a fund holding illiquid, hard-to-sell loans, the math stops working.
What happened at Blue Owl should grab every investor's attention. Private credit is no longer a niche corner of finance. It has exploded into a market estimated at $1.8 trillion to $3 trillion, depending on how you measure it.
Morgan Stanley pegs U.S. private-credit lending alone at around $3 trillion, larger than both the public high-yield bond market and the syndicated loan market. Moody's projects assets under management will exceed $2 trillion this year and approach $4 trillion by 2030.
What happened at Blue Owl wasn't an isolated hiccup. Withdrawal requests across large business development companies (BDCs) surged 200% in the fourth quarter of 2025, reaching $2.9 billion.
Blue Owl's own fund saw redemption requests running 20% above the prior year and exceeding the standard 5% quarterly cap. When too many people rush for the exits in a fund holding illiquid, hard-to-sell loans, the math stops working.
Meanwhile, the underlying credit picture is deteriorating. The Proskauer Private Credit Default Index jumped to 2.46% in the fourth quarter of 2025, from 1.76% six months earlier. That headline number still looks manageable - until you dig deeper. Once you include restructurings, distressed exchanges and liability management exercises, the "true" default rate approaches 5%.
Fortune magazine recently reported that the "shadow default rate," which measures companies that use risky payment-in-kind debt as a substitute for cash payments, has more than doubled since 2021, reaching 6.4%.
Add to this the artificial-intelligence disruption fears hammering software companies - a sector where Blue Owl is one of the biggest private-credit lenders - and you can see why investors are nervous.
Read: Finally you can invest like the 1% - use this stress test before getting locked into private markets
Is this 2007 all over again?
Here's where we need to be honest about both the parallels and the differences between now and the global financial crisis.
The parallels are real. In the summer of 2007, two Bear Stearns hedge funds froze redemptions after heavy losses on subprime-mortgage-backed securities. Investors were told everything was fine - right up until both funds lost nearly all their value and filed for bankruptcy. What looked like one firm's problem turned out to be the first crack in what became a worldwide financial crisis.
The common thread is a liquidity mismatch: funds that promise investors regular access to their money while holding assets that can't be easily sold. That is exactly what's happening in parts of private credit today.
But the differences matter. Bear Stearns's funds were leveraged at a 3-to-1 ratio, stuffed with opaque collateralized debt obligations tied to a collapsing housing market, and the assets ultimately proved nearly worthless.
Blue Owl, by contrast, sold $1.4 billion in loans at 99.7 cents on the dollar - meaning the underlying assets have held their value. Banks today are far better capitalized than in 2007, thanks to postcrisis regulations such as Basel III. And private-credit funds generally use less leverage and have longer lockup periods than the precrisis vehicles that blew up.
This is not yet a repeat of 2008. But dismissing it as a nonevent would be a mistake.
So no, this is not yet a repeat of 2008. But dismissing it as a nonevent would be a mistake. The U.S. Federal Reserve itself has flagged that banks are increasingly lending to private-credit funds, creating indirect exposure to the same risks. If enough private-credit funds come under stress at the same time, the pain doesn't stay contained. It leaks back into the banking system through credit lines, warehouse lending and cross-collateralization arrangements.
What should investors do now?
After years of explosive growth fueled by yield-hungry investors and loosening standards, the market is entering its first real stress test.
If you own shares in publicly traded BDCs or alternative asset managers including Blue Owl, Apollo or Ares, pay attention. Those high dividend yields of 10% to 16% reflect the fact that these are inherently riskier investments - that's always been the deal. The question is whether the risk is now being adequately priced.
If you're in a semiliquid private-credit fund - the kind that promises quarterly redemptions - understand that promise has limits. Blue Owl just demonstrated that the exit door can close permanently when conditions deteriorate. Bank of America analysts actually called this a buying opportunity. That may prove correct for sophisticated investors with long time horizons. For ordinary investors who might need their money back, take this mess as a warning shot: Treat private-credit allocations as genuinely illiquid, no matter what the marketing materials say.
The bigger picture: Private credit isn't going away. It's become structurally important to how companies get financed. But after years of explosive growth fueled by yield-hungry investors and loosening standards, the market is entering its first real stress test. The headline default rate is still low, but beneath the surface, in rising shadow defaults, surging withdrawal requests and compressed yields that no longer compensate for the risk, the cracks are widening.
Blue Owl isn't Bear Stearns. But the investors who lost money in 2008 didn't lose it because they panicked too early. They lost it because they paid attention too late.
Laks Ganapathi is head of Unicus Research, an independent firm providing actionable, short-only investment ideas.
More: No Fed, no safety net: Why private credit's first real recession will be its moment of truth
Also read: This fund that now says it'll never open up for withdrawals has El-Erian making Bear Stearns parallels
-Laks Ganapathi
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March 04, 2026 18:15 ET (23:15 GMT)
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