Private Credit - The $2.7 Trillion Shadow Lending Market Is Showing Cracks
Published: March 24, 2026
Private credit - the $2.7 trillion shadow lending market - is showing cracks that remind Wall Street of 2008.
Jamie Dimon: "When you see one cockroach, there are probably more." Lloyd Blankfein: "It sort of smells like that kind of a moment again."
The IMF flagged it. The Boston Fed flagged it. 40% of private credit borrowers have negative cash flow.
Blackstone scrambled to meet $3.8B in redemptions. Blue Owl halted withdrawals. Median BDC now trading at 0.73x book value, lowest since 2020. In 2008 that ratio hit 0.35x.
And the macro backdrop - payrolls at -92K, oil at $113, delinquencies going up. Fed trapped - is making it worse.
The management companies (Blackstone, Apollo, Ares, Blue Owl) are down 30-50% in 6 months. The fund NAVs haven't caught up yet. They will.
"You don't know who's been swimming naked until the tide goes out" - Buffett
Charts from tremor.tigzig.com
Private Credit - Shadow Lending Cracks
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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
SourcesThe Evolution of Direct Lending - Morgan StanleyPrivate credit investments: 'Some caution is reasonable,' advisor says
“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
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.
SourcesBlackstone's flagship private credit fund posts first monthly loss in over three years | ReutersWhy Wall Street is calling out 'echoes' of the 2008 financial crisis | CNN BusinessAfter pouring billions into private credit, many investors want out
“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?
“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
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”
SourcesIMF Global Financial Stability Report, April 2024, Chapter 2IMF Global Financial Stability Report, October 2025Federal Reserve Bank of Boston, Current Policy Perspectives 25-8, May 2025
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
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 March 20, 2026
Are We Staring into Face of Another Full BearMarch 14, 2026