Episode summary
Private Credit’s ‘Back Leverage’ Is Another Pain Point for Funds | Bloomberg Businessweek
Bloomberg Businessweek Daily
· · 11 min · Hosts: Carol Massar, Tim Stenovec · Guests: Chris Whalen
Summary
Private credit is under pressure from several fronts: JPMorgan Chase is said to be restricting some lending to private credit funds, Cliffwater capped repurchases in its $33 billion flagship fund after investors sought to redeem about 14% of shares, and alternative asset managers have sold off sharply. Chris Whalen argued that these moves reflect a market that has grown too greedy and too opaque, especially after firms invited retail investors into products that are inherently illiquid.
Whalen said the biggest banks pulling back can trigger broader caution across the lending system, but he did not see the situation as a full-blown systemic crisis. In his view, the losses will be painful and may force sponsors to take back vehicles or work things out privately, yet the scale is still too small to bring the economy to a halt. He emphasized that public markets exist because private assets lack real-time pricing and transparency.
He also criticized the industry’s marketing of private credit as superior to public markets, saying investors are being sold ill-suited products with little recourse if things go wrong. For Whalen, the long-term issue is not just today’s markdowns but the broader migration of capital away from public markets after years of regulation and fee-driven growth in private strategies.
Key takeaways
- Chris Whalen said JPMorgan Chase is the "biggest secured lender in the world," so its pullback could prompt other banks to tighten lending to private credit funds.
- Whalen argued private credit is illiquid by definition, and retail investors were brought in without adequate suitability protections.
- He said the current stress is not systemic because "these are private mistakes" that can be worked out privately.
- Whalen criticized the industry for promoting private markets as superior to public markets despite weak transparency and no public price discovery.
- He said the real valuation only matters when an asset can be sold, not when it is modeled by an external firm.
Notable quotes
“if they start to pull back, the other banks will do likewise”
“They decided to up their fees by inviting retail investors into private stuff and private stuff is by definition illquid”
“the only valuation that matters is when you sell the asset to somebody”
“I think many times if you look at Harvard and some of the other big institutional investors that have bailed out of private, they would have done much better than just buy the S&P futures”
“So, this this is why, you know, it's very important to have that suitability rule in top of mind and it's liquidity”
How the episode opens
Bloomberg Audio Studios podcasts radio news. — You're listening to Bloomberg Business Week with Carol Masser and Tim Stenc on Bloomberg Radio. Investors in Cliff Waters $ 33 billion flagship private credit fund looked to redeem about 14% of shares in the first quarter, leading the firm to cap its repurchases at 7%. It said this in a letter to investors that was seen by Bloomberg. And Carol, this is on a day where shares of asset managers are already taking a hit.
Yeah, those alternative asset managers we're talking about areas management KKR falling as JP Morgan Chase is said to be restricting some lending to private credit funds. The move adds to already weak sentiment. We've talked about this a lot surrounding alternative asset managers after weeks of stock selloffs.
And there's more, but let's get into it with another look at the world of credit. It's one of those big questions and concerns that are out there in the trading environment. Chris Whan is back with us.
He's chairman of Whan Global Adviserss, co-founder of institutional risk analytics, author of a bunch of books including inflated money, debt, and the American dream, worked at the New York Fed in the 1980s, worked on Wall Street, like you have seen a lot and we talked with you so much during the the financial crisis. Um, I always remind everybody that because I, you know, you look at balance sheets of things and try to figure it out. Private credit, you were talking about something when you came in.
Um, first of all, private credit, like the JP Morgan move, is that something that's worrisome, responsible? Jaime's the one back in the fall talked about more cockroaches when it came to the private market. Chris, how are you kind of adding all this stuff up?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private credit
- carried interest
- credit fund liquidity
- software-linked loans
- bank lending restrictions
Companies and tickers mentioned
- JPM
- MS
- JPMorgan Chase
- Morgan Stanley
- Cliffwater
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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