In January 2026, Blue Owl Capital did something a lender proud of its stability is not supposed to do: it told investors in one of its credit funds they could not have their money back, at least not all of it, and not on the schedule they expected. The fund’s standard quarterly redemption cap was 5% of net assets. Facing a wave of exit requests, Blue Owl raised the limit to 17%, freeing up roughly $685 million, and then, when the requests kept coming in the following quarter, it tightened the gates again. Nothing about this was illegal or even unusual by the fine print of the fund’s own documents. But it was a useful, uncomfortable demonstration of what happens when a product sold as steady, bond-like income meets a market that suddenly wants its cash back at the same moment.
For an industry that has spent a decade telling investors and regulators that private credit is fundamentally different from the bank lending it displaced, more disciplined, more patient, better underwritten, the optics were bad. But the more important story isn’t whether the gates were prudent risk management or a warning sign. It’s who was on the other side of those redemption requests, and what that tells us about where corporate leverage in the global economy actually lives now.
A trillion-dollar shift nobody voted on
Private credit, direct loans from non-bank lenders to companies too small, too leveraged, or too impatient for the syndicated loan market, has grown from roughly $2 trillion in assets in 2020 to somewhere between $1.5 trillion and $3 trillion today, depending on whose definition you use, with Morgan Stanley projecting $5 trillion by 2029. The growth story is well understood: post-2008 capital rules made banks more cautious lenders, and asset managers like Apollo, Blackstone, Ares and Blue Owl stepped into the gap with capital that could move faster and skip the disclosure that comes with a syndicated deal. For a mid-market CEO trying to fund an acquisition without six banks and a ratings agency in the room, that’s a genuinely attractive trade.
What’s less understood is that the “non-bank” framing was always somewhat misleading. Banks still lend $220 billion to $500 billion globally directly to private credit funds, according to the Financial Stability Board’s May 2026 assessment of the sector, and about half of private credit borrowers simultaneously hold a bank revolving credit line. The leverage hasn’t left the banking system so much as moved a step or two away from it, through layers that are individually small but collectively harder to see. That is a familiar shape. It is roughly the shape that mortgage risk took in the run-up to 2008, when the exposure sat several structures away from anyone whose job was to worry about it.
The diligence defence, and its expiry date
To be fair to the industry, its strongest argument held up reasonably well in its first real test. When the auto-parts roll-up First Brands and the subprime auto lender Tricolor both collapsed in the autumn of 2025, amid allegations of double-pledged collateral and undisclosed off-balance-sheet financing, the losses landed overwhelmingly on banks and public asset-backed securities holders, not on private credit funds. Most sophisticated direct lenders had flagged the opaque financing and simply declined to lend. Senior direct loans have shown default-related losses of roughly 0.4% a year since 2017, a genuinely strong number.
That track record is real, but it is also a function of a market still young and flush enough with capital to be selective. The Federal Reserve, the FSB and Jamie Dimon, who has now issued what commentators are calling a “triple warning” on the sector across successive JPMorgan shareholder letters, are not worried about last year’s defaults. They’re worried about underwriting standards on this year’s originations, made under competitive pressure to keep growing toward that $5 trillion target. The FSB’s numbers are worth sitting with: average borrower leverage of 5 to 6 times EBITDA, rising toward 7 times once aggressive earnings add-backs are stripped out; roughly 10% of middle-market borrowers in collateralised loan pools generating too little cash to cover their own interest payments; and payment-in-kind structures, where interest is added to principal rather than paid in cash, now present in around 12% of loans and correlated with higher delinquency later. None of that is a crisis. All of it looks fine until the cycle turns and stops looking fine all at once.
The part that should actually worry a CEO
Here is the piece of this story that gets far less attention than leverage ratios, and that matters more for anyone running a company that either borrows this way or competes for capital against companies that do: increasingly, the ultimate money behind private credit isn’t a bank’s shareholders or a sophisticated institutional fund. It’s a retiree’s annuity and a retail investor’s “alternative income” allocation.
Apollo built its post-2020 growth strategy around owning Athene, an annuity insurer, so that policyholder premiums could be funnelled directly into Apollo-originated credit. KKR did the same with Global Atlantic. This isn’t a fringe practice; private-equity-affiliated insurers now control close to $900 billion in insurance liabilities, up from $67 billion in 2012, and hold materially riskier collateralised loan exposure than the industry average, roughly 65% investment-grade against a norm closer to 80%, and just 21% rated AAA versus 39% industry-wide. US regulators noticed: in 2026 they raised the risk-based capital charge on the riskiest CLO tranches to 45%, a fairly blunt signal that supervisors think this exposure is underpriced. Meanwhile, ordinary retail investors, largely through interval funds and non-traded business development companies like the one Blue Owl gated, now account for roughly 13% of the US private credit market, up from almost nothing a decade ago.
What this means is straightforward and uncomfortable: leverage that used to sit inside the most regulated, most capitalised part of the financial system has been substantially rerouted into two of its least protected corners, insurance balance sheets and retail savings products, marketed the entire time as safe, steady, uncorrelated income. When Elizabeth Warren wrote to the US Treasury in mid-2025 asking for a systemic risk assessment of the sector, this was the mechanism she was really asking about. It’s also the mechanism least likely to get a 2008-style rescue if it goes wrong, because “we bailed out annuity holders” is a far harder sentence for a regulator to say than “we bailed out the banking system.”
What this changes about raising capital
For a CEO or CFO weighing a direct lending package against a syndicated bank facility, the relevant question is no longer simply which is cheaper or faster. It’s who actually holds the risk on the other end, and how that changes behaviour under stress. A single lender or small club of them can be far more flexible in a workout than a syndicate of twenty banks with competing incentives, since there’s no coordination problem. But that same concentration means a covenant breach can trigger a more unilateral response, with no public market and often no other creditor whose consent is needed. Boards approving these facilities should weigh counterparty concentration, and what a renegotiation with that specific lender, given its own funding pressures, is likely to look like, as seriously as they weigh pricing.
There’s also a reputational dimension that hasn’t fully arrived but is coming. The first time a mid-sized company’s collapse is traced back to an annuity shortfall for retirees, or a retail fund locking up ordinary investors’ savings for months, the political reaction will be fast and the regulatory response broad, not narrowly targeted at the one fund that failed. Every company that has structured its balance sheet around this capital staying cheap and patient is betting on a regulatory status quo that the industry’s own growth is steadily eroding.
India’s version of the same bet, with better institutional memory
India’s private credit market is smaller but growing fast, roughly $3.5 billion in the first half of 2026 alone across more than a hundred deals, with real estate accounting for over a third of deal value. That concentration should ring a bell: it echoes the real-estate-heavy NBFC exposures behind the IL&FS and DHFL crises of 2018 and 2019, events recent enough that RBI and SEBI officials lived through them as regulators, not as history. That institutional memory is arguably India’s genuine advantage. Regulators here have shown more appetite for early concentration limits and disclosure on alternative investment funds, precisely because they’ve already watched opaque, real-estate-heavy shadow lending unwind badly once. The same retail creep is visible, though, as wealth platforms increasingly package AIF private credit for India’s growing base of high-net-worth investors, an audience that will keep expanding toward something resembling America’s retail BDC buyer.
None of this argues that private credit is a mistake, for American companies or Indian ones. It has genuinely improved the range and speed of financing options available to businesses banks were never well suited to serve. But the industry’s pitch to executives has always emphasised the wrong variable. The question worth asking before signing the term sheet isn’t how quickly the money arrives. It’s who is actually going to be holding the loss if the company can’t pay it back, and whether that person signed up, knowingly, for the risk they now carry.
