# Private Credit - The $2.7 Trillion Shadow Lending Market Is Showing Cracks Published: 2026-03-24 Private credit showing cracks that remind Wall Street of 2008. Jamie Dimon and Lloyd Blankfein flagging risks. 40% of borrowers have negative cash flow. Blackstone scrambled to meet $3.8B in redemptions. Management companies down 30-50% in 6 months. ## Where to find the full content - HTML page (full text, image deck, links): https://tigzig.com/post/private-credit-shadow-lending-cracks-2026 - Markdown of the HTML page: send GET https://tigzig.com/post/private-credit-shadow-lending-cracks-2026 with header `Accept: text/markdown` - PDF deck (full analysis, charts, sources): https://tigzig.com/files/TREMOR_MAR_2026_PRIVATE_CREDIT.pdf ## Tags portfolio-quants --- ## Full analysis transcript (extracted from PDF deck) _This text was extracted from the source PowerPoint deck. Chart visuals (referenced as "no text content - see PNG at /files/...") are in the PDF and slide images on the HTML page._ ## Private Credit Straw that breaks the camel’s back? Ghosts of 2008“When you see one cockroach, there are probably more…” Jamie Dimon --- ## What is Private Credit & Direct Lending 2025E Private Lending ~2.7T & direct lending ~1.4T Direct Lending > 50% of all private credit Private credit is lending outside the traditional banking system - private lenders originate loans directly with borrowers Post-2008, banks retreated from lending to smaller firms. Direct lending filled that gap for middle market companies Banks are still exposed - they fund private lenders (BDCs) Retail/HNW investors exposed via BDCs, new private credit ETFs & Pension fund investments Sources[The Evolution of Direct Lending - Morgan Stanley](https://www.morganstanley.com/content/dam/im/assets/publication/thought-leadership/article/article_evolutionofdirectlending.pdf?1774345169325)[Private credit investments: 'Some caution is reasonable,' advisor says](https://www.cnbc.com/2026/03/22/private-credit.html) --- ## “A significant private credit shakeout on par with Covid losses is coming” – Morgan Stanley “In our view, AI disruption will be a meaningful catalyst to drive defaults higher in direct lending… Overall, we expect the direct lending default rates to reach 8%, approaching Covid peak levels” - strategist Morgan Stanley Joyce Jiang (as reported by CNBC) Premise: New technology & AI ➜ erode demand for software services ➜ hurt lenders. Morgan Stanley estimates that ~26% of direct lender portfolios (BDCs) and ~19% of private credit CLOs are exposed to software - a sector highly vulnerable to AI disruption Source: [Private credit shakeout matching Covid losses coming, Morgan Stanley says](https://www.cnbc.com/2026/03/17/private-credit-shakeout-matching-covid-losses-coming-morgan-stanley-says.html) --- ## Investors in private credit demanding their money back Blackstone, the private equity giant: $3.8 billion in redemption requests. CNBC reports that at least 25 senior leaders from across the firm pitched in some $150 million from their own wallets . BCRED, Blackstones flagship private credit fund posted its first monthly loss of 0.4% in ​more than three years in February, it’s first since September 2022, when it posted a loss of 1.3%. Blue Owl - hit with withdrawal requests. Halts redemptions and liquidates assets to repay. Sources[Blackstone's flagship private credit fund posts first monthly loss in over three years | Reuters](https://www.reuters.com/business/blackstones-flagship-private-credit-fund-posts-first-monthly-loss-over-three-2026-03-20/)[Why Wall Street is calling out 'echoes' of the 2008 financial crisis | CNN Business](https://edition.cnn.com/2026/03/06/business/private-credit-blue-owl-2008-nightcap)[After pouring billions into private credit, many investors want out](https://www.cnbc.com/2026/03/05/private-credit-blackstone-blue-owl-kkr-carlyle-retail-wealth-investors-liquid.html) --- ## “We're due for kind of a reckoning" Lloyd Blankfein, ex-CEO Goldman Sachs Lloyd Blankfein on Bloombergs ‘The Big Take’ podcast (as reported by Yahoo Finance) while speaking on the troubles in the private credit market. “The market could be the flashpoint for a bigger crisis in markets, pointing to the growing risks of another financial crisis given the decade of relative calm since the 2008 downturn.” "It sort of smells like that kind of a moment again," Blankfein said, referring to the 2008 financial crisis. "I don't feel the storm, but the horses are starting to whinny in the corral." Source: [Ex-Goldman CEO Sounds Alarm on Private Credit: Could the Next Crisis Be Around the Corner?](https://finance.yahoo.com/news/ex-goldman-ceo-sounds-alarm-173043843.html) --- ## “When you see one cockroach, there are probably more… Everyone should be forewarned on this” Jamie Dimon Tricolor Holdings (subprime auto lender) went bust Sep 2025. Even JPMorgan took a $170M hit from this single bankruptcy First Brands (auto-parts) filed Chapter 11 with ~$2.3B in hidden loans. DOJ opened a criminal probe - echoes of Lehman Dimon’s point: these may be isolated, but in a downturn more will surface - “when you see one cockroach, there are probably more” Beyond software, are car loans the next ‘toxic mortgages’ ? Source[: Why Jamie Dimon is warning of 'cockroaches' in the US economy | CNN Business](https://edition.cnn.com/2025/10/16/business/jamie-dimon-us-economy-cockroaches) --- ## The regulators saw it coming IMF April 2024: Private credit could become systemic risk. Stale valuations, fragile borrowers, hidden leverage, opaque interconnections. IMF 2025: Half of DL borrowers had negative free operating cash. This deterioration of the borrowers’ credit quality has not been reflected in the accounting valuation of DL loans. Boston Fed May 2025: Banks fund private lenders through credit lines and could pose systemic liquidity risk to banking sector under certain circumstances, including borrowers defaulting together. Boston Fed’s own words "tail risk may be underappreciated” Sources[IMF Global Financial Stability Report, April 2024, Chapter 2](https://www.elibrary.imf.org/display/book/9798400257704/CH002.xml)[IMF Global Financial Stability Report, October 2025](https://www.imf.org/-/media/files/publications/gfsr/2025/april/english/text.pdf)[Federal Reserve Bank of Boston, Current Policy Perspectives 25-8, May 2025](https://www.bostonfed.org/publications/current-policy-perspectives/2025/could-the-growth-of-private-credit-pose-a-risk-to-financial-system-stability.aspx) --- ## What are the markets saying? --- ## Blackstone down ~40% from its 6 month highs Past 10 Years Past 6 Months --- ## Apollo Global down ~30% from 6m highs Past 6 Months Past 10 Years --- ## Blue Owl Capital down ~50% from 6m highs Past 10 Years Past 6m Since IPO – Past 5yrs --- ## Ares Management down 40% from 6m highs Past 1 Year Past 10 Years --- ## “The US private credit market is heading in the wrong direction” - The Kobeissi Letter Source: [The Kobeissi Letter on X: "The US private credit market is heading in the wrong direction](https://x.com/KobeissiLetter/status/2030076245304602734) BDCs are publicly traded firms that lend to small and mid-sized US businesses. At 0.73x NAV, the market is saying 27% of their loan book is overvalued. This ratio has been declining for 18 months. In 2008 it hit 0.35x. ~20% of BDC portfolios are exposed to software, a sector under AI disruption pressure. --- ## The macro backdrop makes it worse --- ## Structural weaknesses intensifying ↓ Non Farm Payroll 2-yr downtrend ↑ Jobless Rate Creeping up ↑ Brent Crude Nearly 2x ↑ PPI Core Rising fast ↑ PPI Overall Oil shock pending ↓ Retail Sales Declining ↑ 30+ DPD Delinquency Past COVID highs ↓ Yield Curve Falling ↓ Equity Markets 5-10% off highs --- ## Unemployment creeping up steadily the past 2 years Past 20 Years --- --- ## US 30+ DPD has already crossed the COVID highs Past 20 Years --- ## Previous Analysis going into structural weaknesses, oil prices and market movements: [Structural Weakness Intensifying](https://www.tigzig.com/post/structural-weakness-intensifying-march-2026) [March 20, 2026](https://www.tigzig.com/post/structural-weakness-intensifying-march-2026) [Are We Staring into Face of Another Full Bear](https://www.tigzig.com/post/tremor-macro-signals-march-2026)[March 14, 2026](https://www.tigzig.com/post/tremor-macro-signals-march-2026) --- ## You don’t know who’s been swimming naked until the tide goes out. - Buffett