Treasury Secretary Says "We Are Concerned" About Private Credit.

Treasury Secretary Scott Bessent said Friday that the US government is keeping a close eye on the $1.8 trillion private credit market, following a turbulent week for Blue Owl Capital, one of the largest private lenders in the country. "We are concerned," Bessent said at the Economic Club of Dallas. "If there is something rotten, it is not going to be handed to the individual investors."

That quote from the country's top financial official sent Blue Owl Capital down another 3.42% on Monday. But to understand why any of this matters, you need to know what private credit is and why it's become such a big deal.

What Is Private Credit?

Private credit refers to loans made directly by non-bank lenders to businesses. Players in this space include large asset management firms like Blue Owl, Apollo, Ares, Blackstone, and KKR. These are not highly liquid loans that get traded on public markets like bonds. They're negotiated directly between the lender and the borrower, usually at higher interest rates than a traditional bank loan, and they tend to go to mid-sized companies that can't easily tap public debt markets.

The asset class has exploded in size over the past decade, growing from a relatively niche corner of finance to roughly $1.8 trillion globally. It's been marketed to an increasingly wide range of investors, including everyday retail investors and pension funds, as a way to earn higher returns than traditional bonds.

What Makes It Risky

The key thing to understand about private credit is that these loans are illiquid, meaning they can't easily be sold if you need your money back quickly. Unlike a stock or a publicly traded bond, there's no market where thousands of buyers and sellers are transacting every day. If a private credit fund needs to raise cash fast, it often has to sell loans at a steep discount.

This becomes a problem if investors all try to withdraw their money at the same time. If a fund faces a rush of redemptions, it could be forced to sell assets at fire-sale prices — ultimately leaving investors with much less than they put in. Funds use withdrawal restrictions precisely to prevent this kind of run.

What Blue Owl Did and Why It Raised Alarms

Last week, Blue Owl Capital restricted quarterly withdrawal options for investors in one of its private credit funds (Blue Owl Development Corporation II), which is being wound down after a planned merger fell apart. The company also sold $1.4 billion in loans from the fund, a move intended to return capital to investors and demonstrate that the underlying loans were worth close to full value (the sale came in at roughly 99.7 cents on the dollar).

But the move attracted scrutiny rather than calming concerns, particularly after Bloomberg reported that one of the buyers of Blue Owl's assets was Kuvare, an insurance-focused asset manager that Blue Owl itself acquired in 2024. Critics asked whether this amounted to selling loans to a related party, and whether it was a representative sample of the portfolio or cherry-picked stronger assets.

Bessent added another concern: he worried that risks from private credit could "migrate to the regulated financial system," meaning banks and insurance companies, which would amplify any problems if the private credit market ran into trouble. "We want to prevent contagion," he said. Ensuring that any private credit turmoil does not spill over into the traditional finance market is a priority for Bessent. 

Is This a Crisis?

Not quite yet, and several analysts pushed back on the alarm. Oppenheimer analyst Chris Kotowski said Blue Owl's loan sale should have been "greeted favorably" as evidence that loan valuations reflect reality. Blue Owl's co-CEO said he sees "largely green flags" in the credit quality of the company's software-focused loans.

But Bessent's comments signal that the government is watching closely, and that private credit is on regulators' radar as a potential systemic risk if economic conditions deteriorate. For everyday investors who have exposure to private credit through pension funds or newer retail investment products (like ETFs), the key takeaway is this: unlike stocks or bonds, you may not be able to get your money out quickly if market conditions turn. Always make sure you are making investment decisions with the risks in mind, 

Sources: Yahoo Finance, CNBC, Bloomberg, Blue Owl, Oppenheimer