Redemptions Halted, Confidence Shaken: Is a Credit Event Unfolding?

Trouble is building beneath the surface of today’s financial markets, and recent developments in private credit are drawing uncomfortable comparisons to 2007. A prominent private-debt vehicle operated by Blue Owl Capital has taken the unusual step of restricting investor withdrawals, unsettling markets and prompting warnings from veteran economist Mohamed El-Erian about broader risks.

Blue Owl’s decision to halt redemptions in its US$1.6 billion private-debt fund and sell down a significant portion of its loan book has already dented confidence. The firm offloaded around US$1.4 billion of loans at close to par and plans to return roughly 30 per cent of net asset value to investors in the first quarter. On paper, that may appear orderly. In practice, the market response has been anything but calm. Shares in Blue Owl’s listed units fell sharply, dragging down other credit-focused investment trusts.

El-Erian, one of the financial world’s most respected commentators on risk and market cycles, described the episode as a potential “canary in the coal mine” for the expanding private credit sector. While he stopped short of calling it another GFC, he highlighted the industry’s rapid growth over the past decade. It now exceeds US$2 trillion in assets, much of it tied up in illiquid loans to mid-market companies that do not trade on public exchanges. Unlike banks, these vehicles lack the same liquidity buffers if conditions deteriorate and investors head for the exit.

The parallels with the pre-GFC period are difficult to ignore. In August 2007, well before the global financial crisis fully unfolded, several funds froze withdrawals, triggering a broader sell-off in risk assets. That episode showed how quickly stress in credit markets can spread. Today’s environment differs in important ways, but the early symptoms are familiar.

Blue Owl’s move also comes as valuations in sectors such as software have come under pressure amid economic uncertainty and shifting growth expectations. Listed private credit managers and other alternative asset groups with similar lending exposure have seen their share prices weaken. Credit spreads have widened, and investors are increasingly questioning how to value portfolios of loans that rarely trade in liquid markets.

At its core, the issue in private credit is structural. These funds typically offer periodic redemption rights to investors seeking yield, yet they hold portfolios of loans that are not easily sold during periods of volatility. When macro pressures build and refinancing becomes more difficult, the mismatch between investor expectations and underlying liquidity becomes exposed.

Gold and silver have already rebounded strongly on renewed credit concerns and the prospect of further tariff measures under President Trump. If stresses in private credit continue to build, this may not be the last time markets are forced to confront the risk of a broader credit event.