Allianz Chief Economic Advisor: Risks in US Private Credit Market Are Spreading

Source: Global Market Report

American economist Mohamed El-Erian stated that rumors surrounding the private credit market suggest that a “typical contagion phenomenon” may be brewing.

The chief economist at Allianz warned that liquidity issues and redemption pressures in private credit could force investors into a dilemma of “if you can’t sell what you want to sell, you can only sell what you can.”

He cited a report from Thursday indicating that Morgan Stanley and Cliffwater have restricted redemptions from private credit funds, marking the latest companies to take such measures in recent weeks.

El-Erian wrote, “The proliferation of such headlines increases the risk of the ‘ATM’ scenario I mentioned: investors being forced to liquidate other healthy funds simply because these funds become the preferred source of cash—even if these funds are fundamentally sound or operate in entirely different asset classes.”

“This is a classic contagion phenomenon: ‘If you can’t sell what you want to sell, then sell what you can.’”

In recent months, concerns about the U.S. private credit market have grown. Earlier this year, Blue Owl paused redemptions from a private credit fund aimed at retail investors, sparking further worries. Other firms, including Blackstone and BlackRock, are also facing redemption requests.

Some Wall Street insiders warn that this redemption freeze recalls the scenes before the 2008 financial crisis. El-Erian recently described it as a “canary in the coal mine” moment, similar to when BNP Paribas in France suspended redemptions of some securitized debt funds in 2007, an event seen by some as a precursor to the 2008 financial crisis.

Recently, veteran Wall Street manager George Noble, a senior executive at Fidelity, warned, “We are witnessing a financial crisis unfolding in real time.”

In his article published Thursday, El-Erian pointed out that private credit pressures and massive artificial intelligence spending are market risks, and ongoing Middle East conflicts have intensified these risks.

The Iran conflict and the resulting surge in oil prices have been the most concerning issues for investors, diverting their attention from the disruptive potential of artificial intelligence and private credit concerns.

According to reports, Goldman Sachs executive Kunal Shah recently stated that private credit clients are “very pleased” that the Iran conflict has distracted them from AI risks.