This Is Starting to Look Like a Slow-Motion Bank Run

Ms. Sarin, a contributing Opinion writer, is a professor at Yale Law School and the president of the Budget Lab at Yale.

Over the past few years, one of the signature funds at Blackstone, the private equity giant, has delivered, on average, 10 percent annual returns for its investors. The fund, which specializes in private credit, has lent money to more than 400 borrowers, who in turn have deployed those loans to become more profitable themselves.

And yet, in the first quarter of this year, nearly 8 percent of the fund’s investors declared they wanted out. Something similar has happened at funds managed by Apollo (where redemption requests hit 11.2 percent), Ares (11.6 percent) and Blue Owl (21.9 percent).

When asked on CNBC to explain why his investors are asking for their cash back, the Blackstone president, Jonathan Gray, blamed “noise” — a “disjointed environment now between what’s happening on the ground with underlying portfolios and what’s happening in the news cycle.”

He may well be right. Another explanation might be that we are witnessing a kind of slow-motion bank run. Investors, spooked by a litany of bad news, are rushing to pull their money out of private credit funds. If they all ask at once, these funds — and potentially the firms that manage them — could falter.

To quote the great Taylor Swift, “I think I’ve seen this film before and I didn’t like the ending.”

In March 2008, also on CNBC, the Bear Stearns chief executive, Alan Schwartz, insisted that despite “speculations,” the firm’s balance sheet hadn’t weakened at all. It failed over the course of the next few days, ushering in the global financial crisis and years of economic stagnation. Then too, executives blamed unsubstantiated rumors for the firm’s collapse.

Private credit firms find the 2008 comparison infuriating. No one today believes any large financial firms are on the brink of collapse, nor that we are days from a systemwide meltdown. But it looks as though the market is getting wobblier: Last October, I suggested that the failures of a few companies that borrowed from private credit funds were the first dominoes to fall and that more would follow. It appears that many private credit investors woke up to that risk — and now want to cash out.

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