Private credit stocks fall as Fed hike odds climb

Top private credit and private equity stocks moved into correction territory after recent U.S. jobs and inflation reports increased the probability of a Federal Reserve interest-rate increase. Blue Owl Capital traded near $10.56, about 56% below its January peak, and its market value has fallen to roughly $16.4 billion from around $40 billion at the high point. KKR traded near $101, about 13% below its August peak. Apollo Global Management, Blackstone and Ares have each retreated more than 10% from recent highs.

The U.S. economy added 162,000 jobs in the most recent report while the unemployment rate held at 4.1%. Headline consumer inflation was 3.4% year over year, and core inflation rose on a month‑to‑month basis. Probability markets and the CME FedWatch tool showed odds of a rate increase above 80% for the next Federal Open Market Committee meeting. The moves in markets followed those releases.

Private credit loans are typically issued on floating-rate terms tied to the Secured Overnight Financing Rate plus a spread, so higher short-term policy rates increase interest income on those loans. At the same time, prolonged higher rates can increase financing costs for borrowers in private credit portfolios and raise default risk. Rising fuel costs are also affecting companies’ operating expenses: retail gasoline averaged about $4.31 per gallon and diesel topped $6.10 per gallon in recent data.

The VanEck BDC Income ETF (BIZD), which tracks large business development companies including Ares Capital, Main Street Capital, Hercules Capital, Golub Capital and Sixth Street Specialty Lending, fell to about $13, more than 4% below its August high. Fund managers have reported net outflows and redemptions from private credit vehicles managed by firms such as Blue Owl, Apollo and Morgan Stanley. Those redemptions can affect liquidity and portfolio-management choices for managers that rely on steady capital inflows.

Private credit expanded after the global financial crisis as banks pulled back from certain types of leveraged lending. The asset class drew large inflows during the period of low interest rates. With policy rates higher and market volatility elevated, investors and managers face rising coupons on floating-rate loans alongside pressure on borrowers’ debt service capacity and on fund liquidity. Market participants are watching upcoming economic releases and Federal Reserve communications for further signals about the pace and persistence of interest-rate changes.