A home improvement company called Renovo needed cash. BlackRock and a group of private lenders gave it to them. For months, those loans sat on the books at full value. One hundred cents on the dollar. Then Renovo collapsed. The loans went to zero. Not down a little. Zero.
I can't stop thinking about this.
That's not how your stock portfolio works. If a company you own starts to crack, the price moves every day. You see it. You can act. With private credit, you see nothing — until you see everything.
Here's what worries me. Five of the biggest names in this business — Blue Owl, Apollo, Ares, Cliffwater, and Morgan Stanley — all moved in recent weeks to block investors from pulling their money out. Ares capped withdrawals at 5%. Investors had asked for 11.6%. That gap matters. When more people want out than the door can handle, the door gets smaller. That's what happened.
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Blue Owl's stock is down roughly 40% this year. Apollo and Blackstone are each down more than 20%. These are not small players. These are the firms that built this market. And right now, their own investors can't leave.
Morgan Stanley put a number on what comes next. They said default rates in private credit could hit 8%. The normal rate is around 2%. That's not a rough patch. That's a different world.
I don't think most people realize how this market works. There is no stock ticker. There is no daily price. The funds decide what their loans are worth. They do it four times a year. Nobody checks their math. It is a $3 trillion market. It is lightly regulated. Nobody knows exactly what's in it. Not fully. Not even the people who run it.
I get it. This felt fine for years. When rates were low and credit was easy, private loans almost never went bad. The steady returns looked like skill. Maybe some of it was. But a lot of it was just a long stretch of calm water.
The water isn't calm anymore.
Four days ago — March 30th — the Trump Labor Department proposed new rules. The goal is to make it easier to put private credit inside 401(k) plans. I want to be fair here. The idea has some logic to it. Private credit has earned real returns. Some workers might benefit. I don't know that it's pure folly.
But the timing is hard to ignore. The same week the exit doors started closing for big investors, Washington proposed opening a new entrance — right through your retirement account.
And here's the part that keeps me up at night. Private credit may already be inside your 401(k). Not through some new rule. Through fixed annuities. These are products that millions of Americans hold inside retirement plans. Insurance companies have poured money into private credit to back the returns they promise. It often isn't disclosed. You don't see a line item. You just see a steady number every quarter. Steady, steady, steady.
That word keeps coming back to me. Steady.
Jamie Dimon said something a few years back that I keep returning to. "When you see one cockroach," he said, "there are probably more." Renovo was one cockroach. The question now is what we don't see yet.
Nobody knows. That's the honest answer. I don't know. The funds don't know. The regulators don't know. The $3 trillion is spread across thousands of private loans to mid-size companies. Many of those companies borrowed when rates were low. Now they're paying back at rates that are much higher. Some will make it. Some won't.
Here's the number I keep coming back to. One in twelve. That's what an 8% default rate means. One in twelve loans goes bad. In a normal year, it's closer to one in forty. That's not a rounding error. That's a different kind of risk.
We were told private credit was the steady part of the portfolio. The boring part. The part that just sat there and earned. What we weren't told is that "steady" sometimes just means you can't see the price move. It doesn't mean the price isn't moving.
Picture a statement. Your 401(k). It shows the same number it showed last quarter. And the quarter before that. Everything looks fine. The loans are marked at full value. One hundred cents on the dollar. Somewhere, a home improvement company is missing payments. Somewhere, a lender is doing the math. You won't know until the next quarterly update. And by then, the math will be done.
More on this tomorrow.
— Lauren
Editor, American Ledger
*Disclaimer: This is a paid advertisement for EnergyX’s Regulation A+ Offering. Please read the offering circular at invest.energyx.com. Under Regulation A+, a company has the ability to change its share price by up to 20%, without requalifying the offering with the SEC.
