Should investors worry about a 2008-style shock?

Traders work on the floor of the New York Stock Exchange (NYSE) on March 13, 2026 in New York City. Photo by Spencer Platt/Getty Images

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Back in the summer of 2008 — or just before the great financial crisis — two unsettling financial trends collided: oil prices surged to almost US$150 a barrel and private funds holding subprime mortgages reported mounting losses.

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Investors might now feel some déjà vu. This month, the U.S.-Israeli attack on Iran has caused the oil price to see-saw violently. And while it remains well below that 2008 peak — especially in inflation-adjusted terms — it could still climb, given the record scale of disruption.

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Meanwhile, bad news is also tumbling out from the non-banking world, this time from private credit funds. Never mind that regulators have repeatedly warned that the private credit sector seems overheated; or that banks like JPMorgan & Chase Co. are reducing exposures to this sphere, which contains “cockroaches” (ie troubled loans) to cite Jamie Dimon, head of JPMorgan.

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What is most unnerving is that multiple funds — ranging from those run by behemoths like Morgan Stanley and BlackRock to specialists such as Blue Owl and Cliffwater — report that investors are trying to flee the funds. That reflects fears that AI will undermine the business model of software companies backed by private credit, even as the sector faces a US$40 billion redemption wall in 2028. However, the risks go well beyond AI, as the recent failure of U.K. lender MFS shows.

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And while most private credit funds have rules that limit quarterly redemptions to five per cent of assets — enabling them to “gate” (ie prevent) excess outflows — the exodus echoes 2008. Hence why Kunal Shah, a top Goldman Sachs executive, told clients that some financiers were “just glad there’s something to talk about that isn’t software exposures and private credit” — ie the Iran war.

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Or, even more bluntly, it is not just U.S. President Donald Trump who might relish the focus on the war (a good distraction from the debate around the Epstein files). Some financiers also have reason to avoid the spotlight. Doubly so, given that retail investors have flooded into private credit, with White House backing.

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So should investors worry about a 2008-style systemic shock? Probably not in the short term. One reason is that private credit is around US$2 trillion in size, so fairly small for the system as a whole. Another is that the wider financial system seems better prepared for shocks — like surging oil prices — as Pablo Hernández de Cos, head of the Bank for International Settlements, recently noted in a thoughtful speech.

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Most notably, he points out that banks’ tier one capital ratios are now 14.3 per cent, (compared with less than 10 per cent in 2011), while their share of high-quality liquid assets and stable funding has risen by 55 per cent and 40 per cent respectively.

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Moreover, since funds can slow investor outflows via gates, and do not need to revalue assets in a timely manner, they are not collapsing (yet). The problem is more akin to a slow-moving cancer than a sudden heart attack. Or to use another metaphor: the private credit bubble is deflating with a long “hiss”, not a “pop.”