Bank of America has dismissed growing concerns about private credit markets, arguing that recent panic surrounding the sector stems from misinformation rather than fundamental weaknesses. The investment bank issued a bullish assessment on Monday, calling the sell-off in private credit stocks an attractive buying opportunity despite widespread alarm over liquidity issues at major alternative asset managers.
The controversy intensified last week when the Financial Times reported that Blue Owl, a prominent alternative asset manager specializing in private credit, froze withdrawals from one of its retail investor funds. Blue Owl stock has plummeted more than 16% over five days as concerns mounted about the health of the broader private credit market.
Private Credit Concerns Spark Crisis Comparisons
High-profile economists and government officials have raised red flags about the situation. Economist Mohamed El-Erian characterized the Blue Owl developments as a potential “canary-in-the-coalmine” moment reminiscent of 2007, just before the Great Financial Crisis erupted. Meanwhile, US Treasury Secretary Scott Bessent stated publicly that he is “concerned” and actively monitoring the Blue Owl news.
Additionally, Business Insider reported that Blue Owl was unable to finance a data center project intended for occupancy by CoreWeave, further fueling worries about the firm’s financial position. The combination of frozen withdrawals and failed financing deals has prompted some market observers to draw parallels between current private credit troubles and past financial crises.
Bank of America Defends Private Credit Industry
However, Bank of America analysts pushed back forcefully against the pessimistic narrative. According to the bank, a “significant level of misinformation” about the private credit industry has created unwarranted concerns and an especially attractive buying opportunity for Blue Owl stock. The firm’s price target implies more than 100% upside potential from current levels.
The analysts outlined several reasons for their optimistic stance on private credit markets. They emphasized that Blue Owl’s data center exposure operates separately from its core private credit business, limiting potential contagion effects. The bank also pointed to strong credit quality within the software sector, which represents a significant portion of private credit portfolios.
In contrast to warnings about systemic risk, Bank of America noted that last year’s high-profile failures at First Brands and Tricolor Holdings did not trigger a broader wave of private credit defaults. According to the analysts, these isolated incidents should not be interpreted as harbingers of widespread distress in the sector.
Long-Term Outlook Remains Positive
Bank of America maintained its bullish long-term perspective on private credit despite short-term turbulence. The bank highlighted the sector’s appeal for US retirees’ portfolios, citing high returns, downside protection, and monthly dividend payments as key attractions. Meanwhile, the analysts noted that private credit strategies have outperformed most equity approaches over the past three years.
The debate reflects broader uncertainty about transparency and risk assessment in rapidly growing alternative investment markets. Private credit has expanded dramatically in recent years as institutional investors and wealthy individuals seek higher yields than traditional fixed-income products offer. Nevertheless, critics argue the sector lacks the regulatory oversight and public disclosure requirements that govern traditional banking.
Market participants will be watching closely for additional developments at Blue Owl and other private credit firms in coming weeks. Regulatory authorities have not confirmed whether they plan formal investigations, though the Treasury Secretary’s stated concern suggests heightened government scrutiny of the sector may be forthcoming.
