Submitted by QTR's Fringe Finance
As I’ve been writing about, private credit has been under immense stress for months, with liquidity strains, redemption pressure, and growing questions around valuations all surfacing at once. And now with things on the verge of imminent collapse and literally all of f*cking Wall Street already on notice, one former major banking CEO has decided to offer up the King Solomon-like revelation that he believes things could get worse from here.
But, obviously, what he doesn’t realize is that the deterioration he’s warning about isn’t ahead of us. It’s already here.
“At some point there needs to be a forcing function or a reckoning that causes you to come to grips with what your balance sheet really is worth,” former Goldman CEO Lloyd Blankfein told Bloomberg this week. He continued: “The analogy I like to give is you accumulate tinder on the floor of the forest and eventually a spark will come. But the longer between intervals where there’s a spark that sets it on fire, the more that accumulates.”
Blankfein’s metaphor of tinder piling up in a forest misses one crucial point: the smoke is already in the air. When Blankfein warns that a spark will eventually force a reckoning in private assets, he’s describing a future event. But the market isn’t waiting for ignition, it’s already reacting. The forcing function he anticipates is not some external shock still to come it’s already unfolding inside fund structures, redemption queues, and valuation disputes. As I’ve written, it’s psychology.
And the psychology has shifted. The bid is no longer blind.
Look at the sequence of events just in March. Apollo Global Management capped withdrawals after double digit redemption requests. Ares Management restricted redemptions as its income fund came under pressure. BlackRock began limiting withdrawals in a major private credit vehicle. And just yesterday, more headlines hit showing big losses for Ares funds. Tinder, meet spark.
This is where Blankfein is late. The moment redemptions get gated, the psychology is already broken. Investors are no longer thinking about yield, they are thinking about access. They are no longer asking what return, they will earn they are asking whether they can get their money back. That shift is irreversible in the short term. Once liquidity becomes uncertain, every private mark becomes suspect. Every quarterly report becomes a negotiation with reality.
And once that realization sets in, the game changes completely. As Morgan Stanley and Cliffwater cap redemptions, and as funds across the space impose limits or gates, the narrative breaks. Investors do not wait for official markdowns…they front run them. They redeem preemptively. They assume the worst. That behavior is the spark Blankfein is looking for, except it is already happening.
As I wrote last week, even insiders have been saying the quiet part out loud. An executive at Apollo Global Management recently said that “all” marks in parts of private markets are wrong. Add in regulatory scrutiny with the SEC questioning private credit ratings and you have something more dangerous than a valuation problem: you have a credibility problem. And markets do not wait for numbers to adjust when credibility breaks. They reprice instantly in behavior.
For anyone who’s been paying attention, none of this is new. This has been building for months, and it has been called out for months. The gates, the redemption limits, the quiet markdowns, the uneasy investor calls…it’s all been there in plain sight. The only thing that’s changed now is that it’s too obvious to ignore. What was dismissed as isolated stress is now showing up everywhere at once.
What Blankfein is describing as a future reckoning is, in reality, a lagging recognition of something already in motion. So the question is no longer what will trigger the downturn. The question is how far it spreads now that it has started. Because once investors collectively realize that liquidity is conditional and marks are questionable, the unwind becomes self reinforcing. That is not tinder accumulating. That is combustion already underway.
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