Finance

Morgan Stanley Warns of a Significant Private Credit Shakeout

Morgan Stanley warns of a coming significant shakeout in private credit, driven by AI-driven disruption and rising direct-lending defaults. Joyce Jiang expects direct-lending default rates to reach about 8%, near Covid-era peaks, signaling potential liquidity stress for funds and borrowers in private markets.

📅 March 17, 2026
⏱️ 2 min read
Morgan Stanley Warns of a Significant Private Credit Shakeout

Key Takeaways

  • Direct-lending defaults could hit about 8%, near Covid-19 peak levels.
  • AI disruption may depress software demand, pressuring lenders and fueling private-market redemptions.
  • Software exposure in direct lending runs around 26% for BDCs and 19% for private-credit CLOs.
  • About 11% of software loans mature by end-2027, with 20% more maturing in 2028.
  • Private-credit liquidity stress is visible in asset sales like Blue Owl’s $1.4B February sale; Blue Owl down ~41% YTD and Blackstone down ~31% YTD.

People Involved

  • Joyce Jiang Morgan Stanley Analyst

Entities Involved

  • Morgan Stanley Investment bank and research firm
  • Blue Owl Capital Asset manager (private credit/loan assets)
  • Blackstone Alternative asset manager

MarketMoodz Analysis

For institutional investors, the note implies tighter private-credit conditions ahead, with higher direct-lending default risk and a front-loaded software-loan maturity profile that could pressure cash flows and liquidity in private markets.

Morgan Stanley’s view emphasizes that, despite visible stress, the balance sheets of corporates and private-credit funds have healthier leverage levels than during past crises, suggesting limited systemic spillover while still calling for heightened risk management around liquidity, redemption gates, and AI-driven demand shifts.

Investors should monitor AI-driven demand changes in software services, direct-lending exposure, and the liquidity cushions of private-credit funds and BDCs, as well as track asset sales and redemption trends that could tighten funding conditions in the near term.

Source: Original Article

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