Famous investor warns that private credit funds are on the brink of "losing control", UBS predicts default rates may reach 15%

Investor rights advocate Boaz Weinstein pointed out that the turmoil surrounding Blue Owl Capital's funds is exposing deeper fissures within this $1.8 trillion industry. UBS Group had warned weeks ago of the worst-case scenario for private credit distress. Now, their estimates have become even more pessimistic. "All it takes is for one snowball to start rolling down the hill, and it has started. Blue Owl is right at the center of that snowball," said Weinstein, founder of Saba Capital Management, at the iConnections Global Alts conference in Miami Beach, Florida on Tuesday. He believes that we are now in the early stages of a runaway situation. This is Weinstein's latest critique of the private credit industry; concerns have been mounting about excessive AI spending and lending standards after Blue Owl restricted redemptions for one of its funds. Strategists such as Matthew Mish from UBS have warned that the default rate for private credit could soar to 15%, two percentage points higher than the company's estimate less than a month ago. The initial report had cautioned that if AI caused "disruptive" upheaval among corporate borrowers, direct lending institutions could face a 13% default rate; but in recent weeks, as concerns about AI disrupting the US economy have deepened, estimates have become even more pessimistic.