$1.7 Trillion and the Question No One Asked...
Why the Hottest Asset Class Forgot to Ask the Only Question That Matters. And what that means for investors everywhere. From London to Singapore to New York.
Strategy is everywhere.
In the arts. Sports. Government.
Even finance.
The quiet decisions that make an organization thrive or drift.
Most people saw Blue Owl’s recent headlines about a $1.4 billion loan sale and halted redemptions and thought…liquidity.
I saw strategy.
Or, the lack of one.
A $1.7 trillion industry that hasn’t answered the only question that matters:
Who are we really for?
This is what happens when you don’t answer that question.
When News Isn’t Really News
In late January, Blue Owl Capital announced that it had sold $1.4 billion in loans at a discount.
This was days after the firm had restricted redemptions in its European interval fund.
The market did what markets do…it panicked.
The coverage had a familiar ring to it.
Liquidity crunch.
Redemption pressures.
Private credit stress test.
Analysts rushed to compare this moment to 2008. Really, to any moment when investors wanted their money back and couldn’t get it.
They were wrong.
This isn’t really a liquidity story. It is a strategy story. The difference matters.
Why?
If you get the diagnosis wrong, you never find the cure.
Blue Owl was built for institutions. Pension funds. Insurers. Endowments.
Investors comfortable with 10-year horizons, who can wait out cycles, who have teams of analysts reading private placement memoranda.
That’s Blue Owl’s core customer.
Then to keep the fund growing. They started selling retail. Through wealth advisers. Through interval funds. The customer became the person with $75,000 in an account that expects quarterly liquidity and checks their balance on their iPhone.
The product stayed the same. The expectations changed.
A mismatch was inevitable.
Here’s what matters: This isn’t about Blue Owl. It is about structural blindness running through private credit globally.
A blind spot that isn’t about underwriting standards, interest rate forecasts, or typical finance topics.
What are we really building here?
Some Background
There’s a logic to how we got here.
After the 2008 financial crisis, banks were held to greater scrutiny. The Volcker Rule. Basel III capital requirements. A thousand smaller constraints that lead banks to stop lending to middle-market companies.
Private credit funds filled this gap.
Direct lenders. Business development companies. Private debt funds. They all answered a simple idea: How do we fund private equity’s debt needs?
The answer was simple. Raise capital from investors who don’t need the liquidity. Lend the money to companies banks won’t touch. Profit.
The illiquidity premium was a license to print money.
The original customers were institutions, insurers, and sovereign wealth funds.
These investors had long-term horizons. They didn’t need their money back next quarter. They weren’t checking their balances daily. They had analysts whose only job was to understand subordination levels and covenant packages.
They didn’t react to cycles. They would wait cycles out.
For more than a decade, this worked.
Private credit delivered. Returns were strong. Defaults low. The asset class grew to become a $1.7 trillion industry.
Then institutional growth slowed. Big pools of capital were largely allocated. Firms needed new capital.
Retail investors!
Through wealth advisers. Through interval funds. Through tender offer funds. Aggressive pushes in the 401(k) market.
An institutional product was now being sold to the masses.
The product was the same. The customer wasn’t.
No one stopped long enough to ask if that mattered.
Right Now
This matters now. The environment is changing.
No doubt about it.
The Shiller CAPE ratio, which measures stock market valuations against historical earnings, is near 40. In 1929, it was 32.5. In 2000, it peaked near 44.
We are in historically expensive territory.
US debt-to-GDP stands at 124 percent. In 1929, it was 16 percent.
This is a structural gap. We’ve never seen a downturn with this much leverage by the US.
The Federal Reserve projects 1.4 percent GDP growth in 2026.
That’s not a recession forecast. That’s the optimist’s forecast.
Consumption is being propped up by high-income spenders. Everyone else has pulled back.
That’s not sustainable.
Citrini Research warns of mass layoffs and unemployment greater than 10 percent.
They called the 2008 crisis.
Mohamed El-Erian put it simply: Blue Owl is “a canary in the coal mine.”
He’s one of the clearest thinkers in finance.
Private credit is uniquely exposed. Not because loans are bad. Not because underwriting was sloppy.
Because the product they sell was never built for the customers now buying it.
Institutional investors can wait out a downturn. They’ve done it before. They’ll do it again.
Retail investors can’t. They panic. Their entire life savings might be on the line. They call their advisers and demand their money back…now.
When a product built for institutions meets investors desiring liquidity…something has to give.
Seeing With a New Lens
Seeing what’s happening requires frameworks that finance doesn’t teach. Not spreadsheets. Not valuation models.
Something more essential.
Three Mirages
Every organization is seduced by three false targets, unimportant byproducts of building something real.
The Money Mirage:
Private credit firms chased retail assets because the money was there. It was growth. It felt like success. It seemed like the natural next step for a maturing industry.
The industry has a word for this. “Retailization.” Take institutional products and sell them to ordinary people.
Turning someone’s retirement into a new business line?
Distribution!
It is a clinical word for a human reality.
Their product, built for pros, sold to grandma and grandpa, mom and dad, checking their accounts on their iPhones. Panicking when the market drops.
They were collecting fees. The product was the same. The customer wasn’t.
As the tide turns, the fees don’t protect you.
Design does.
The Connection Mirage:
Firms built relationships with wealth advisers. Enough advisers meant they had a distribution channel.
In theory.
When panic hit, advisers needed exactly what their clients needed: reassurance.
They wanted to understand the product. They needed to explain it to their clients. They needed to believe in it.
The connection between private credit firms and investors was paper-thin.
Because it ran through advisers, a middleman. These relationships were built on transactions, not understanding.
Connection can’t be outsourced.
The Identity Mirage:
Private credit became the hottest asset class. “Juggernaut” was the identity. The big firms were unstoppable. Size was validation.
Size doesn’t tell you what you are building. “Something big” is nice. But what? For whom?
The firms came to see themselves as giants.
But they were shaky because they were just a collection of assets, not a firm.
Not something meaningful.
The Strategy Stack:
Five questions cut through the confusion.
What does success look like?
Most private credit firms never answered this.
They defaulted to AUM growth. Because AUM is easy to measure and everyone understands it.
AUM is a metric. Not a destination.
Success is something like delivering above average returns to the right investors over a full cycle.
The definition changes everything.
Who is the customer?
Institutions are different customers than retail.
Duh!
Different time horizons. Different expectations. Different psychologies. Different needs.
Serving them the same products isn’t efficiency.
It’s incompetence.
Why Us?
Size isn’t the answer. Neither is history. Neither is “relationships.”
Firms that survive and thrive have real answers. Built on specific expertise, real alignment, products designed for the people that are using them.
What resources do we need?
Most firms had the resources. The problem was focusing on the wrong customers with the wrong products.
Resources without strategy is just noise.
What actions will we take?
The industry defaulted to tactics.
“Number go up” thinking. Raise more money. Acquire competitors. Sell loans when pressed.
Then reassure investors on the next conference call.
This is all reaction.
Choice. Focus. Action.
Choice
Private credit raised more money. From whoever had it.
They should have had a clear customer and stuck with them.
“We build for institutions.”
Not, “We build for institutions and now retail.”
It doesn’t work.
Different customers. Different needs.
Focus
Private credit tried to serve multiple, opposing customers at once. Institutional investors with long horizons and retail investors with short-term horizons.
With the same product?!
They should have said no. No to the wrong investors.
Not because the money was bad. Because they couldn’t do a good job for them.
Action
Private credit reacted. Pressure built. They responded with merger attempts, more reassurance calls, and loan sales.
All tactics.
Put out the fire.
Consistency was needed. Build products for the customers you want to serve. Make decisions today that would make sense in a year or two, even five. Not just this quarter.
A Global Challenge
America isn’t unique. These dynamics are everywhere private credit is.
Europe
European private credit AUM are nearly $500 billion. Growing at twice the rate of the US market.
The same forces that drove private credit growth in America are at work on the continent: bank retrenchment, yield hunger, institutional allocation.
The same retail push is happening.
European wealth advisers are doing what American advisers did five years ago. Putting clients into private credit products.
European regulators are watching with concern.
European investors are discovering that liquidity isn’t guaranteed.
Same risks. Same mismatch. The only difference is the timing.
London
The City is the capital of European private credit.
The December 2025 issue of Creditflux carried a cover story, “London Calling.” All about the rush to wealthy individuals.
London’s private credit firms have a choice. Adapt to retail expectations or see the opportunity pass.
Build products for the buyer, or keep selling institutional vehicles for retail investors.
Make the right choice: you define the next decade of European finance.
Make the wrong choice: you become a case study in what not to do.
Middle East
Family offices and sovereign wealth funds in the Gulf are perfect private credit investors. Long time horizons. Professional staff. Sophisticated risk profiles.
They’ve been in the asset class for years.
As the West chases new capital, Middle Eastern investors are being courted more aggressively than ever. The hard questions echo: Who is this really for?
Are these investors partners? Or are they seen as easy sources of liquidity?
The firms that answer truthfully can build relationships that last for generations. The ones who don’t will find the Gulf teaches them humility.
Asia
Private credit has come to Asia. Markets like India and Southeast Asia offer opportunities because traditional banking is inadequate.
Middle-market companies need capital.
“Retailization” is happening in Asia. Asian wealth is growing. Asian advisers want yield. Asian investors are learning about private credit while the Blue Owl story makes headlines.
New markets. Same lessons.
If the product isn’t built for you, how good it looks doesn’t matter.
It is a mirage.
What Now?
The path forward requires strategic clarity.
The coming cycle will punish the ambiguous. Strategy will be essential.
When defaults rise investors will look closely at what they own. Retail investors realizing their interval fund isn’t as liquid as they thought will redeem.
Firms built for retail will survive, even thrive.
They will have the right products, the right communications, and the right expectations. Firms that repurposed institutional products will struggle, maybe fail.
The ones thriving will ask the questions no one else is asking. What are we building? Who is it for? What does success look like?
Not once.
Continuously. As a discipline.
Advisers will face a different challenge. Not about offering private credit, but about their partners. Which managers understand what they’re building and for whom?
Start asking these questions now.
Not about performance. About design.
If the answer is vague, evasive…you have your answer.
Investors have a simpler challenge. Understand what you own.
Private credit can be valuable. It can deliver great returns. But you must understand the terms, risks, and time horizon.
If the product feels like it was designed for someone else…trust your instincts.
What Will You Choose?
Private credit isn’t failing as a business. AUM continues to grow. Returns are still strong.
The Blue Owl headlines are a warning.
Private credit has failed to answer the first question of strategy.
Who are we for?
The firms that answer that question will survive this moment. They’ll be stronger. They’ll define the next decade.
The firms that don’t won’t survive. They’ll become case studies. You will see their names in post-mortems. Their mistakes will be taught in business schools.
Not because the loans were bad. Because they forget that strategy is about what you build, yes. But also why you are building and for whom.
The ones that win will ask those questions.
Not because it’s noble. Because it’s the only way to build sustainability.