President Donald Trump’s speech last night about Iran did little to change the current market dynamic.
That will change in time. But the real challenge to market indexes goes beyond rising oil prices. In the background, the festering pool of bad private credit deals remains.
This morning, private credit giant Blue Owl noted that it had redemption requests totaling 22% of its income fund, and a staggering 41% in its software fund. The problem? The company is capping redemptions at 5%.
Traders are hitting the eject button on private credit as quickly as they can:
Companies in the private credit space have tanked as redemption requests have soared. (Source: FactSet)
The trouble with private credit: investors are lured in by the promise of higher returns. But to get them, they have to surrender liquidity. At the first sign of trouble, liquidity is exactly what they want. Shares of private credit giants trading on public markets are selling off hard.
Given that private credit deals have infected the entire financial system – backed by major banks, insurance companies and pension funds – the contagion is proving as hard to “contain” as subprime mortgages in 2007.
Written by: Andrew Packer @Ripple Effect
The post “Private Credit’s Implosion” first appeared on The Grey Swan Investment Fraternity