00:00There's another concern hanging over the markets. Last week, the private lender Blue Owl permanently restricted withdrawals from one of
00:07its funds after investors pulled out $1.4 billion.
00:11This sparked uncomfortable memories of the 2008 financial crash when initial defaults quickly rippled through the entire financial system.
00:19So how big is the private credit world? Non-bank lending is huge and growing rapidly.
00:25What started as a $200 billion market in 2010 is now worth $3 trillion.
00:31Some estimate it will end up growing to $4.9 trillion by the year 2029.
00:37So what are the potential problems?
00:40Well, with the market growing so quickly, there are concerns that standards could slip in the rush to make more
00:45and more loans.
00:46Another worry is that the private credit funds, private equity firms and now even banks that are backing them are
00:52becoming so entangled
00:53that if a business fails, it could have a domino effect.
00:57Finally, the value of private credit loans is determined by fund managers rather than market forces,
01:02which can lead to out-of-date valuations.
01:04And that's an issue if the loans are used as collateral elsewhere.
01:08Well, let's talk now to Matt Maley, Chief Market Strategist at Militabak.
01:12Good to see you back on the programme, Matt.
01:14So we've been talking about Blue Owl and this restriction on withdrawals.
01:18Is this a one-off incident or do you think we could see this kind of thing happening more widely?
01:24Well, first of all, just to say, excuse my little hoarse voice here.
01:28I'm just getting over a cold.
01:30But to answer your question, though, is that it's a bit of a canary in a coal mine.
01:35I mean, it is a concern.
01:37Is it as big as it was back in 2006 and 2007?
01:41Because we know how Jamie Dimon has been comparing what's happening now to what happened back then.
01:48I don't think it's quite as big.
01:49And we'd also note that even though we're up near $3 trillion, the overall public corporate market is about $13
01:58trillion.
01:59So it's not as big.
02:01However, it's definitely reminiscent.
02:03I mean, it's weird because back in 2000, I'm sorry, back in 2007, Bear Stearns, before they went in the
02:11summer of 2007, they closed several of their funds.
02:15They were high-yield funds.
02:18And that was kind of the first shoe to drop.
02:21And then six months later, seven months later, the second shoe dropped, and that's when Bear Stearns went under.
02:29And then, of course, Lehman was another 10 months after that.
02:33And this time we had Tricolor and First Brands.
02:40They went belly up last summer.
02:42And now six or seven months later, we have these issues with Blue Owl.
02:45So it's maybe not quite as bad, but it's definitely something that are scaring people to a certain degree.
02:52So, Matt, we are hearing you loud and clear.
02:53But if you do want to pause and take a sip of water to help, that's entirely fine.
02:57Do go ahead if you do.
02:58So let's talk about these private lenders then.
03:00There is a certain circularity to the way they operate at lending to each other.
03:04Is that something that is potentially risky?
03:07It is because, you know, we have this situation that, again, is reminiscent of what we saw, whether it be
03:14on the AI front with, you know, the circular investment there.
03:18The same thing happened in the tech area in the late 1990s or before the great financial crisis, where you
03:25had so many entangled alliances, as you might call them, that it created, you know, as you said in the
03:32introduction.
03:33If one domino starts to fall, the whole thing could get worse.
03:37And, you know, it's just a situation also that we have a lack of liquidity, especially with all the retail
03:44investment that's moved into it recently.
03:47It's had a sale.
03:48These people, you know, they're used to getting into mutual funds and stocks, and they can get out of them
03:53whenever they want.
03:54Now that they can't get out of these like Blue Owl, that creates some problems.
03:58Matt, great to talk to you.
03:59Thank you so much for coming back on the program.
04:01Matt Mailey there from Miller Tabak.
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