Goldman Sachs Group CEO David Solomon said he is closely watching for a “bubble” in the private credit market, but unlike some of his peers, he doesn’t see any major reasons for concern.
Solomon said in an interview with Bloomberg Television in Sydney on Thursday: “We are closely monitoring the market for signs of excessive exuberance and bubbles. Although there have been some individual incidents causing problems, the overall performance of the investment portfolio has been quite good.”
In recent weeks, the $1.8 trillion private credit market has continued to raise concerns, with investors partly worried about the risks posed by artificial intelligence to some borrowers and valuation issues. Last month, a fund under Blue Owl Capital Inc. chose to suspend quarterly redemptions and began selling assets to return investors’ funds. This week, Blackstone Group’s flagship private credit fund allowed investors to redeem a record 7.9% of its shares.
Investors are increasing their short positions in Blue Owl Capital Inc., betting that the stock still has room to fall despite having lost nearly a third of its market value this year.
According to S3 Partners LLC, the short position ratio of Blue Owl rose to a record high of 14.65% this week, surpassing the previous record of 14.3% set in December.
Another metric used by S&P Global Market Intelligence shows that as of yesterday’s close, the short position in Blue Owl as a percentage of free float was 17.9%, up from 14.9% on the previous Tuesday.
Data from EquiLend Data & Analytics showed that on Wednesday, Blue Owl’s stock was the most borrowed in the U.S. stock market – a metric that can indicate investors’ willingness to short the security. As of 2 p.m. New York time, the borrowing volume of Blue Owl’s stock had exceeded 19 million shares.
Nancy Allen, the head of data and analytics solutions at EquiLend, said, “In recent weeks, we have witnessed a notable increase in borrowing demand for Blue Owl.” She pointed out that the volume of stock lending rose by 46% month-on-month, and the financing rate climbed by 266%. She added that these “significant fluctuations indicate an increase in the demand for borrowing stocks, while borrowing costs have also risen sharply.”
After a series of high-profile corporate collapses, concerns in the credit market have generally intensified, with the latest example being Market Financial Solutions Ltd., which is headquartered in the UK.
Santander’s executive chairwoman, Ana Botin, compared the blow from non-performing loans to a jellyfish sting, after reports emerged that the bank had exposure to the mortgage lender.
Jamie Dimon, the CEO of JPMorgan Chase, compared bankrupt corporate borrowers to “cockroaches”, suggesting that there might be more companies facing the same predicament.
