Don't just focus on Iran; the US private equity crisis is gradually reminiscent of the subprime mortgage crisis.

Source: Wall Street News

While market attention is focused on geopolitical risks, a quietly spreading private equity credit crisis is rapidly escalating within the US financial system. Redemption waves, asset sell-offs, and fund closures—investors have seen this scenario before in 2008.

This week, BlackRock, the world's largest asset manager, announced restrictions on investor redemptions from its $26 billion HPS corporate loan fund (HLEND), marking the most impactful signal to date.

Previously, Blackstone's private credit fund experienced a record 7.9% redemption request, causing Blue Owl's stock price to fall below its SPAC IPO price.

Three private equity lending giants have successively run into crisis, and the gears of a vicious cycle have already meshed together.

Meanwhile, Pacific Investment Management Company (PIMCO) warned in its latest client report that the direct lending industry is facing a "full-blown default cycle," and stress tests are inevitable. This assessment, coming from a long-time critic of private lending, carries significant weight.

The spread of the private lending crisis has been directly reflected in the stock price trends of related listed companies. Blue Owl's stock price has fallen below its SPAC offering price, and the valuations of private lending businesses of institutions such as Blackstone and BlackRock are under pressure. The entire industry is facing a systemic reassessment of investor confidence.

01. BlackRock Restricts Redemptions on its Private Credit Funds

According to an article on Wall Street News, BlackRock issued a statement on Friday saying that shareholders of its HPS Corporate Lending Fund (HLEND) applied to redeem a total of 9.3% of their shares, but the fund management decided to set the repurchase limit at 5%, or about $1.2 billion.

In its statement, BlackRock characterized the move as a "fundamental" arrangement for fund liquidity management, stating that without restrictions, it would result in a "structural mismatch" between investor capital and the duration of private credit loans.

The wording sounded calm, but the market understood its meaning: if full redemption is required, BlackRock will have to initiate a large-scale asset sell-off.

Previously, another private lending arm of BlackRock had shown alarming signs – BlackRock TCP Capital Corp., in its fourth-quarter report, valued a $25 million loan to Infinite Commerce Holdings at zero, down from 100 cents, just three months earlier when the loan was marked at face value. From 100 to 0, in three months, without any warning.

02 A chain reaction of selling: A vicious cycle triggered by panic selling

BlackRock's closure is not an isolated incident, but rather the end of a lit fuse—or rather, the beginning of a new one.

Three weeks ago, Blue Owl Capital took the lead.

Faced with a surge in redemption requests (primarily due to its highly concentrated exposure to software loans, which are rapidly devaluing such assets due to the impact of AI), Blue Owl announced the sale of $1.4 billion in privately placed credit loans to replace the quarterly redemption mechanism with asset monetization, effectively freezing investor funds as well.

The company emphasized that all assets to be sold are at the highest level of internal risk rating (Level 1 or 2 in the five-level system).

However, this "prime assets first" strategy is precisely what accelerates the spread of the crisis. If secondary market buying is limited to high-quality assets, the sale of portfolios by other business development companies (BDCs) will face even thinner liquidity. It is understood that NMFC has indicated it is proceeding with the sale of approximately $500 million in portfolio assets (representing 17% of its total investments at the end of the third quarter of 2025).

Blackstone's situation is equally dire. Its private credit fund, BCRED, manages $82 billion, and redemption requests reached a record 7.9% this quarter, exceeding the legal limit of 7%. To avoid triggering the blackout mechanism, Blackstone employees were asked to personally subscribe to $150 million to fill the gap.

Three institutions, three different responses, but the logic is the same: closing the doors or a disguised form of closing them to avoid a forced sell-off that could trigger a larger valuation collapse. Analysts point out that the problem is that BlackRock's decision to close the doors itself has sent the strongest panic signal to the market, potentially triggering more investors to rush to redeem their shares.

03 Blue Owl: Share price falls below IPO price, risk exposure continues to increase.

As the epicenter of this crisis, Blue Owl Capital's situation continues to deteriorate. Its stock price fell below its SPAC IPO price of $10 this week, hitting a three-year low.

According to Bloomberg, citing sources familiar with the matter, Blue Owl has a £36 million (approximately $48 million) exposure to London mortgage lender Century Capital Partners Ltd. – an indirect exposure resulting from its 2024 acquisition of Atalaya Capital Management.

Century filed for bankruptcy administration last month, with total liabilities of approximately £95 million. NatWest Group and Hampshire Trust Bank are its priority creditors.

Blue Owl holds the riskiest subordinated tranche in Century's loan portfolio. Century's manager, RSM UK, expects to recover the senior loans in full, but the fate of the subordinated tranche remains uncertain.

This event reveals another side to the expansion of private credit: asset-backed financing was once seen as a new frontier for growth by industry leaders, with executives from Pimco, Carlyle Group, Marathon, and Blackstone all publicly bullish on this sector. Now, the risks of this sector are surfacing in unexpected ways.

04 PIMCO warns: A full-blown default cycle is on the way

Amidst the turmoil in the private lending market, PIMCO analysts Lotfi Karoui and Gabriel Cazaubieilh issued their most direct warning to date in their latest client report. The two analysts wrote in the report:

PIMCO was one of the early critics of private lending. While direct lending strategies have seen a surge in fundraising, this firm, which manages approximately $2.3 trillion in assets, has opted to take a contrarian approach, proactively seeking out potential problems within companies supported by private lending.

PIMCO's analysis identified several key risk points:

Regarding the liquidity predicament faced by BDC investors, PIMCO's wording was equally straightforward: "Semi-liquidity is not the same as full liquidity. Investors must assess their own liquidity needs and their tolerance for limited funds."

However, PIMCO also differentiates between different segments within private lending, believing that sub-sectors such as asset-backed financing still have investment value and can provide "investment-grade" risk levels. Last year, PIMCO raised over $7 billion for its asset-backed financing strategy.

05 Will the subprime crisis reappear?

The structural logic of this round of crisis is not complicated: semi-liquid products promise quarterly redemptions, but the underlying assets are long-term private loans; when redemption applications exceed the threshold, the manager either closes the door or sells assets; the sale depresses asset prices, triggers more valuation adjustments, and then triggers more redemptions—thus forming a cycle.

This same logic played out once before in the 2008 subprime mortgage market. At that time, the initial cracks also appeared in a corner of the market that was considered "fragmented and professional enough".

Today, the private lending market has reached a size of $1.8 trillion, and its risk concentration, valuation opacity, and liquidity mismatch are being tested in a similar way.