Private Credit Risks Mount; Select Firms Hold Opportunity

JPMorgan CEO Jamie Dimon has warned about these growing risks, particularly for non-bank lenders. A significant concern is the software sector, where many Business Development Companies (BDCs) hold about 25% of their portfolios, making them vulnerable to AI disruption and potential default rates up to 13%.

Blue Owl Capital (OWL) is highlighted as a stock to avoid, receiving a Zacks Rank #4 (Sell) due to lower EPS revisions and restricted investor withdrawals from its private credit fund, signaling liquidity stress. Conversely, Blackstone (BX), Apollo Global Management (APO), and Ares Management (ARES) are rated Zacks Rank #3 (Hold), trading over 30% from 52-week highs, offering more attractive long-term risk-to-reward despite mixed EPS trends.

Ares Capital (ARCC), a BDC, also holds a Zacks Rank #3 (Hold) due to strong demand, low volatility, and a 10.13% dividend yield. Investors should monitor rising defaults, valuation pressure from falling rates, liquidity issues in semi-liquid funds, and regulatory scrutiny.