Good morning. Andrew here. Anxiety about private credit is growing following a strategic flip-flop from Blue Owl Capital, which lent aggressively to software companies now being disrupted by artificial intelligence. A major source of concern is the broad push to sell “semi-liquid” instruments to U.S. retail investors. Billed as the future of private equity, these vehicles have a big flaw: They can “gate” investor withdrawals. It’s a mechanism meant to protect the fund during market upheaval — but it can also further undermine investor confidence. If the industry is dead-set on attracting retail investors, it may be time to change how these vehicles work. Here’s an idea: Why not move these assets into so-called target-date funds with longer time horizons? It could ensure that only those who won’t need their money for decades are invested. In other words, it may reduce the risk of a “run on the bank” while giving savers the yield they crave. (Was this newsletter forwarded to you? Sign up here.)
Has the reckoning started for private credit?Shares in private credit giants — especially Blue Owl Capital, the particularly hard-hit lender — remain under pressure this morning after a blood bath yesterday. Yet while some on Wall Street remain confident about the sector, others warn that a potential reckoning may have only just begun. The latest: The stocks of lenders including Apollo, Ares and Blackstone were shellacked yesterday after Blue Owl altered how investors in one of its most prominent funds can withdraw (or “redeem”) their money. Blue Owl said it would decide how much investors can take back every quarter, rather than letting them redeem a set amount. Investors have worried about private credit for months now, after it soared in popularity in recent years. Skeptics of private credit have warned that the lightly regulated sector could face big losses if an economic downturn reveals that lenders had overextended themselves with bad loans. (Jamie Dimon of JPMorgan Chase memorably warned last fall of potential “cockroaches” coming to light.) More recently, private credit investors have worried about stock swoons for enterprise software companies, to which private lenders are heavily exposed. Was the Blue Owl fund a “canary in the coal mine?” That metaphor was used by observers including Mohamed El-Erian, the former C.E.O. of Pimco. Dan Rasmussen, the founder of the investment firm Verdad, predicted to CNBC, “The private markets bubble is finally starting to burst.” Defenders say that’s not necessarily the case. Blue Owl disclosed yesterday that it had sold $1.4 billion worth of loans from three funds, taking virtually no loss. Nearly half of the proceeds went to redeem investors in one of the funds. “I’m getting congratulations from everyone in our industry,” Craig Packer, a Blue Owl co-president, told The Times about the loan sale. Bill Katz, an analyst at TD Cowen, wrote in a research note yesterday that the transaction suggested “there are no ‘cockroaches’ lurking in the portfolio.” That said, shares in Blue Owl are down in premarket trading today. Keep an eye on Washington. While the Trump administration has introduced rules making it easier for individual investors to put money in private equity, including private credit, Treasury Secretary Scott Bessent has also pushed to deregulate banks to help them better compete. Senator Elizabeth Warren, Democrat of Massachusetts, urged the Trump administration yesterday to “wake up” and demand more disclosures and stress tests for private lenders — especially with retail investors’ money on the line in funds like the Blue Owl vehicle. If Democrats make gains in the midterm elections, expect potentially more heat on the sector.
The fallout from the Epstein files spreads. Bill Gates canceled a speech for an artificial intelligence event in India amid renewed scrutiny over his ties to Jeffrey Epstein. Emails have emerged showing Ben Goertzel, a prominent A.I. researcher, congratulating Epstein on his release from jail after being convicted of sex crimes. An advisory firm founded by Peter Mandelson, the veteran British politician and longtime Epstein friend, collapsed. And Bard College has begun an “independent review” into its president over his ties to Epstein. U.S. imports hit a record in 2025, in spite of President Trump’s tariffs. Imports rose 5 percent last year to $4.3 trillion, even as the trade deficit fell slightly to $901.5 billion. That meant America continued to be a net importer, despite Trump arguing that the levies would make the U.S. a major exporter. Of note: Imports of goods from China dropped nearly 30 percent, to their lowest level since 2009 — but U.S. exports to China fell by nearly as much. New York drops a plan to allow robotaxis. Gov. Kathy Hochul pulled a proposal that would have allowed commercial autonomous vehicles to operate outside of New York City, which labor groups and taxi drivers had opposed. The decision is a blow to Alphabet’s Waymo (which planned to provide more than one million paid weekly robotaxi rides in the U.S. by the end of 2026), Tesla and other service providers. A different inflation problemPresident Trump and Fed policymakers largely agree that the economy is doing fine. But when it comes to America’s affordability crunch, an issue of huge importance to voters, the president and central bankers are growing further apart. That widening gap may cause problems for Kevin Warsh, the president’s pick to succeed Jay Powell as Fed chair after his term expires in May. The situation that awaits Warsh could come into sharper focus later this morning with the release of the Consumer Price Expenditures report, the Fed’s preferred measure on inflation. It’s expected to show that inflation in December remained well above the Fed’s 2 percent target and was showing little sign of easing. The White House and Wall Street will also be watching the Supreme Court. The court is slated to release its latest opinions today, and next Tuesday and Wednesday. Businesses have been anxiously awaiting the justices’ ruling on the legality of Trump’s most bruising tariffs, those justified under the International Emergency Economic Powers Act of 1977. Trump took on inflation and tariffs yesterday. If the court were to invalidate the tariffs, most importers would rejoice. (New research by the JPMorganChase Institute shows that tariffs are especially walloping midsize U.S. businesses.) But that would also wipe out a potential windfall that the administration hoped to use to plug the country’s giant debt hole. “Without tariffs, this country would be in so much trouble right now,” Trump told supporters at a steel plant in northwestern Georgia. The president continued to play down inflation. He called the affordability crisis “fake news” yesterday, arguing, without evidence, that he had vanquished the problem. But economists and business leaders continue to worry that a two-tiered — or K-shaped — economy is emerging in which high-wage earners are weathering high inflation while poorer households struggle. And a new inflation risk has emerged. The price of Brent crude has soared this week — it stabilized this morning around $71 a barrel — as the The Times has reported that the president is weighing strikes against Iran. Military action could disrupt a key oil exporting trade route. Trump said yesterday that Iran would need to reach a deal with Washington over the next 10 to 15 days, “otherwise bad things happen” — a timeline that has left markets on edge. The uncertainty about inflation is becoming harder to ignore. Stephen Miran, the former White House economic adviser who joined the Fed last year, appears to have had a kind of change of heart. He had been in lock step with Trump in calling for the Fed to slash borrowing costs this year. But now he has moderated his rates outlook, calling for the equivalent of two fewer cuts than he had supported in December. Why? “Firming” of goods inflation, he says, is becoming an issue. Picture of the day
The tech world is still buzzing over an awkward moment at an A.I. summit in New Delhi yesterday. For a photo op, Prime Minister Narendra Modi of India asked the participants to clasp hands above their heads. But two major rivals, Sam Altman of OpenAI (above, center) and Dario Amodei of Anthropic, weren’t having it. A new kind of global trade alliancePrime Minister Mark Carney of Canada stunned business and political leaders last month at the World Economic Forum in Davos, Switzerland — and rankled President Donald Trump — by declaring that the era of U.S.-led free trade was dead, and urging “middle powers” to forge their own deals. The speech left many questions about the potential fallout on geopolitics and global trade. But one thing became clearer at the annual ministerial meeting of the International Energy Agency this week in Paris, Vivienne Walt writes. While U.S. officials were threatening to abandon the I.E.A., their counterparts to the north were asserting a new trade vision based squarely on Carney’s speech. A recap: Chris Wright, the U.S. energy secretary, generated arguably the most headlines from the I.E.A. summit. He threatened to pull the U.S. out of the organization unless the I.E.A. ditched its “ridiculous” net-zero road map — emissions guidelines that many companies and countries are sticking with despite the Trump administration’s opposition to them. As Wright browbeat the I.E.A., Canada got to work talking deals. Here’s what DealBook heard on the sidelines: Countries beyond Canada are also pursuing the blueprint that Carney spelled out in Davos to “rewire their economies to be less reliant on the hegemons,” Timothy Hodgson, Canada’s energy and natural resources minister, told DealBook. “Our economic integration is being weaponized against us, and tariffs are being used as leverage against us,” said Hodgson, a former Goldman Sachs banker who worked with Carney at the investment bank and later at the Bank of Canada. Canada plans to double its exports to countries other than the U.S. within a decade. That speaks to how U.S. trading partners are trying to leave Washington’s orbit and create a new trading network, Hodgson said. Consider:
Canada plans to eventually ship as much as 100 million tons of liquefied natural gas to other countries, Hodgson said, a huge jump from today’s levels. In addition, critical minerals — of which Canada has large reserves — would also be shipped worldwide, he said, in a move to break China’s stranglehold on global supplies. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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