Private credit crisis deepens as investors exit

What happened: Investors are pulling out of private credit funds, driving a deepening crisis in the sector. Blackstone's BCRED fund saw redemption requests surge to 10% in Q2, up from 7.9% in Q1. BlackRock's private credit fund, BlackRock TCP Capital, is facing significant asset markdowns and federal scrutiny, leading to the departure of its CEO. Lee Robinson, who profited from the 2008 subprime crisis, is now shorting private credit. Apollo's private credit fund saw 17% of investors redeem in Q2.

Market impact: The private credit sector is under stress, with higher interest rates squeezing borrowers and investors concerned about loan quality. This is affecting business development companies like Ares Capital, which make loans to smaller businesses. The outflows and mounting losses are causing investors to reassess the sector, leading to a potential repricing of valuations.

What to watch next: Investors should monitor the redemption trends in private credit funds, particularly in Q3 earnings reports. The Federal Reserve's next policy decision on September 21 will provide clarity on the trajectory of interest rates, which are a key stress point for the sector. Additionally, any regulatory developments around valuation practices in private credit funds will be crucial to watch.