Private market titans warn of pain as credit cracks widen

Blue Owl signage outside the Seagram Building at 375 Park Avenue in the Midtown East neighborhood of New York, U.S., on Jan. 20, 2026. Photo by Bing Guan/Bloomberg

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Amid the worst start to the year for their stocks in more than a decade, leaders of Wall Street’s biggest private markets firms had a surprising message: investors have reason to be concerned.

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From Blue Owl Capital Inc. to Blackstone Inc., private credit funds across the industry are facing a wave of withdrawals and analysts are warning default rates could soar if AI disrupts corporate America as much as some experts expect. And in private equity, managers are struggling to offload assets and return cash to investors, forcing them to turn to expensive forms of debt to extract returns from businesses they’ve acquired.

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“People made choices: If you wanted a higher dividend, you could take more risk,” Apollo Global Management Inc. chief executive Marc Rowan said on stage at the Bloomberg Invest conference. “That felt really good on the way up. That’s not going to feel so good on the way down.”

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Rowan was among a chorus of executives warning of the additional troubles to come for the industry at the conference on Tuesday. Soros Fund Management Chief Investment Officer Dawn Fitzpatrick said investors in both private credit and private equity are in for “a painful 18 to 24 months.”

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And while Ares Management Corp.’s chief executive Mike Arougheti argued that a forecast last week from UBS Group AG analysts that private credit default rates could reach 15 per cent was “absolutely wrong,” he also said only those private markets firms that are more diversified will survive.

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“Diversification is a big way to mitigate risks,” Arougheti said. “It’s also a way to dampen returns. We’re constantly trying to find that right balance.”

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Some say turbulence is inevitable after years of rapid expansion.

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“With any market that’s growing rapidly, there can be some level of a shakeout,” said Scott Adelson, chief executive officer of Houlihan Lokey, whose private credit database and analytical platform aggregates data from more than 60,000 loan valuations. “There are some credit providers that could have a difficult time.”

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Problematic loans exist in both banks and in private credit, Adelson said in an interview Tuesday in Tokyo, noting that not every deal succeeds and that risk is what generate returns. Private credit as an asset class is “here to stay,” he added.

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Brookfield Asset Management chief executive Connor Teskey called the current challenges facing private credit “hiccups” for the industry — though he cautioned it wouldn’t diminish demand for such assets in the longer term.

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“We generally are of the view that credit markets are in good shape, bank balance sheets are terrific, corporate balance sheets are strong, capital markets are liquid,” Teskey said. “Then you get to direct lending. And there are undoubtedly some concerns about direct lending.”

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To gate or not to gate

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The latest comments came as some asset managers faced a wave of redemption requests from investors — with many adopting differing approaches in how to deal with them.