The private credit market is flashing warning signs

This article appeared as part of the Daily Sensemaker newsletter – one story a day to make sense of the world. To receive it in your inbox, featuring content exclusive to the newsletter, sign up for free here.

If distressed debt funds see the private credit market as the “biggest opportunity” since 2008, there should be some cause for worry. Victor Khosla, founder of Strategic Value Partners, made the claim to the FT on Sunday. His firm manages $21bn in assets and is designed to “unlock value in complex situations”. The opaque private credit market represents a complex situation. It has grown fivefold since the recession, but default rates are rising and there have been notable troubles at Blue Owl Capital, a private lender which recently sold some of its assets and halted redemptions at one of its funds, and at First Brands, an autoparts maker which was heavily reliant on private debt before it collapsed last year. Investors are now fleeing the market, which thankfully is only worth an estimated $2tn. It may be too small to upend the global economy.

Further reading: Private credit is having a public wobble