Who's afraid of private credit?

Richard Cox, a retiree, invested $30,000 from his savings into private credit in 2024 on his broker's advice. This "black box" industry pools investor money to make loans to businesses, often riskier ones, bypassing traditional bank regulations. But when Cox sought to withdraw his funds from Blue Owl, a major player, he joined a surge of investors facing delays, as funds cap redemptions at about 5% per quarter. Amid this exodus, the Trump administration proposed easing rules to let employers include private credit in 401(k)s.

Private Credit's Rise After the Financial Crisis

Private credit emerged as shadow banking grew post-2008. Economist Natasha Seren recalls her college class interrupted by Lehman Brothers' collapse, triggered by banks' risky subprime mortgages unraveling amid falling home prices. Congress responded with Dodd-Frank in 2010, imposing stricter rules on banks to curb excessive risk-taking. This pushed lending activity outside regulated banks into firms like Blackstone, Apollo, and Blue Owl.