‘Golden’ or ‘garbage’: Milken signals new private credit era

[NEW YORK] Months before JPMorganChase’s chief executive Jamie Dimon’s infamous remark about more than one “cockroach” lurking in credit markets, TCW Group CEO Katie Koch warned that the direct lending industry was due for a reckoning.

“We are now going to start to see some of the accidents in this asset class,” she said last May, before a crowd that included private-credit titans at the Milken Institute Global Conference.

Still, the caution was largely drowned out by the optimism around private credit in the wake of tariff-induced chaos in public markets.

Ares Management Corp CEO Mike Arougheti predicted a “golden” opportunity for the industry, while Blue Owl Capital co-founder Marc Lipschultz said “it’s about navigating the storm”, with private credit proving its mettle.

The latest iteration of the Beverly Hills confab, which brings together the biggest names in finance and investing, kicked off on Sunday (May 3) at a very different moment for the US$1.8 trillion private credit market. 

First came the abrupt collapses of Tricolor, First Brands Group and Market Financial Solutions, creating fears across all credit markets that more such cockroaches could be lurking.

Then, the rapid markdowns of some troubled direct loans, concerns around artificial intelligence (AI) disruption and the Iran war collectively drove retail investors to flee private credit at an unprecedented pace, forcing managers including Ares and Blue Owl to cap redemptions – and flip into damage-control mode.

“Twelve months ago, private credit sponsors were marking positions at or above cost, supporting claims of ‘low volatility’,” Jeffrey Gundlach, CEO of DoubleLine Capital and a speaker at this year’s Milken conference, said. “Now, there is awareness.”

Gundlach has been among the most outspoken critics of the industry, claiming that many in the market have engaged in “garbage lending” that could cause a global market meltdown. 

New era

It is in many ways fitting that the event – which earned the nickname “The Predators’ Ball” in its original iteration, as financiers struck often-hostile deals to buy and sell companies – is happening at this inflection point for the industry.

After all, Michael Milken’s 1980s-era junk bond boom at Drexel Burnham Lambert led to today’s leveraged finance and private credit markets.

Also fitting is the 2026 theme: “Leading in a New Era”.  

The war in Iran has left the Middle East on edge, and the blockade of the Strait of Hormuz is causing an energy crunch around the world.

The rapid advancement of AI has led to widespread fear that jobs could soon disappear and existing software businesses – many of which rely on private credit financing – might see significant drops in revenue. 

All that has also led to a time of turmoil for private equity firms, which have been struggling to exit investments after a drop in valuations. The industry had hoped to see a return to widespread dealmaking in 2026 that was quickly derailed by the war in Iran and software fears.

Meanwhile, investors in these funds are becoming increasingly anxious to get their money back. 

The number of conference attendees is poised to exceed 4,000, with more than 200 sessions over the course of roughly three days. Regular paid admission started at US$35,000, with the costliest package, the “Chairman’s Circle”, at US$150,000.

Those panels, which feature finance leaders including Blackstone’s Jon Gray, Apollo Global Management’s James Zelter and Carlyle Group’s Harvey Schwartz, are of course only the public face of a conference known for countless closed-door meetings between movers and shakers across industries.

Other discussions will address AI, including a chat with Nvidia CEO Jensen Huang, plus panels about how to fund the massive infrastructure build-out and how to reimagine the workforce.

Ahead of pivotal US midterm elections, politicians including Gretchen Whitmer and Ron DeSantis, governors of Michigan and Florida, respectively, are both featured panellists, along with senators Ted Cruz of Texas, Angela Alsobrooks of Maryland, Bill Hagerty of Tennessee and Mark Warner of Virginia. 

And much of the programming is dedicated to advancements in health innovation and philanthropic goals, along with a splash of Hollywood star power.

Milken will interview legendary singer and songwriter Lionel Richie about his book. Elisabeth Moss, star of The Handmaid’s Tale, will make an appearance on a panel about creativity. The four-day conference wraps up with a concert by American rapper and singer Pitbull on Wednesday.

Private credit

Still, the most pressing question facing panellists will almost surely be what is next for private credit, especially after the views expressed only a year ago.

One voice that will not be featured at the conference is Blue Owl’s. The firm is scaling back its presence for the first time since 2023, when it started attending the gathering as it rose through the ranks of the private capital industry.

This year, none of its top executives will be speaking at the event and its logo no longer features among the sponsors.

The firm is still hosting a dinner at Nerano, an Italian restaurant near the conference site at the Beverly Hilton on Monday. The event has become a fixture of the evening programme.

“Blue Owl is a big supporter of the Milken Conference,” a company spokesperson said in a statement. “While the decision to not sponsor for 2026 was made nearly a year ago, the firm still plans to have a robust presence this year, sending senior leaders from across the organisation.”

Other speakers from last May’s conference who now look prescient include Oscar Fahlgren, chief investment officer and global head of private equity at Mubadala Capital.

He said of direct lenders’ marks: “If you are sitting in a 2021 vintage private credit fund and it’s marked at par – you are mistaken.”

Thoma Bravo’s Medallia has been the poster child of this issue. A loan made to the software firm in 2021 was valued at higher than 90 cents on the dollar by many major managers in early 2025. Blackstone wrote down the value of the nearly US$3 billion loan to 60.3 cents as of March. 

Orlando Bravo, founder and managing partner at Thoma Bravo, said last week at a Bloomberg event in Miami that the private equity giant would not inject any fresh capital into the ailing company, meaning creditors will “probably take back the keys”. 

Such a move would wipe out the US$5 billion of equity that Thoma Bravo and co-investors had put into the company.

Private credit has ballooned in recent years and is significantly exposed to lending to software companies owned by private equity firms. That has driven fears that many loans could go bad if AI eats into the revenue of existing businesses.

This, in turn, has led some investors to rush for the exits, even though a widespread erosion in earnings has not yet materialised.

Ares, Blackstone and Blue Owl have all sought to reassure investors about the AI risks facing their software borrowers, arguing that proprietary “score cards” and outside consultants have determined loans in their funds are largely protected.

Non-traded business development companies, a popular type of retail-focused fund, have taken the brunt of investor angst. Big private credit firms had to decide whether to impose their 5 per cent redemption caps or find ways to get everyone their money back. 

Most managers have so far chosen to enforce the 5 per cent cap on redemptions. Still, Blackstone and Oaktree Capital Management’s parent company Brookfield took the unusual step of dipping into their own pockets to satisfy requests in excess of that threshold.

Concerns are not limited to software. Barry Sternlicht’s US$22 billion non-traded real estate investment trust halted redemptions last week. The Starwood Capital Group CEO is slated to speak at the Milken conference.

Meanwhile, a long-anticipated return to private equity dealmaking appears to be derailed, and large institutions are trying to figure out how to navigate all the geopolitical turmoil and new AI tools that could change both their own businesses and what they invest in. 

“The issue with private credit is that the market’s priced in nearly zero write-off risk,” said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James Financial. 

Now the asset class is pricing in higher losses, she said, which “is taking away the dream unicorn scenario of private credit and making it more realistic for investors”. BLOOMBERG