Well-known investors warn that private credit funds are "about to lose control," with UBS estimating default rates could reach 15%

Venture investor Boaz Weinstein pointed out that the turmoil related to funds under Blue Owl Capital is exposing deeper cracks in this $1.8 trillion industry. UBS Group had previously warned of the worst-case scenario for private credit defaults a few weeks ago. Now, their outlook has become more pessimistic.

“All it takes is for a snowball to start rolling down the hill, and it has already begun. Blue Owl is at the center of this snowball,” Weinstein, founder of Saba Capital Management, said Tuesday at the iConnections Global Alts conference in Miami Beach, Florida. He believes the situation is currently in its early, uncontrolled stages.

This is Weinstein’s latest critique of the private credit industry; after Blue Owl restricted redemptions for one of its funds, concerns grew over excessive AI spending and lending standards.

Strategists like Matthew Mish from UBS said that private credit default rates could soar to 15%, two percentage points higher than UBS’s estimate less than a month ago.

The initial report warned that if AI causes a “radical” disruption among corporate borrowers, direct lending institutions could face a 13% default rate; but in recent weeks, as fears of AI disrupting the U.S. economy have deepened, forecasts have become more pessimistic.