Market Stagnation and Liquidity Risks Intensify, Warns DoubleLine CEO
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Mar 23 2026
0mins
Source: CNBC
- Market Stagnation: DoubleLine Capital CEO Jeffrey Gundlach highlighted that the current market is in a trendless holding pattern, with almost no assets delivering significant returns over the past nine months, indicating a lack of investor confidence.
- Liquidity Risk Intensification: Gundlach warned that stresses in the private credit market are deepening, particularly as investors rush for liquidity, with redemption requests far exceeding 5%, which could lead to more profound market turmoil.
- Historical Comparison: He compared the current market environment to the period leading up to the 2008 financial crisis, noting that asset prices appear overvalued and early signs of strain are being dismissed as isolated incidents, suggesting greater risks ahead.
- Investor Vigilance: Gundlach emphasized that retail investors will demand more in future liquidity windows, indicating increasing scrutiny on liquidity management in asset classes that have rapidly grown during low interest rate periods.
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Analyst Views on ARCC
Wall Street analysts forecast ARCC stock price to rise
4 Analyst Rating
4 Buy
0 Hold
0 Sell
Strong Buy
Current: 18.810
Low
20.00
Averages
21.75
High
23.00
Current: 18.810
Low
20.00
Averages
21.75
High
23.00
About ARCC
Ares Capital Corporation is a specialty finance company focused on providing direct loans and other investments in private middle market companies in the United States. The Company invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and subordinated debt, generally in a first lien position), and second lien senior secured loans. In addition to senior secured loans, it also invests in subordinated debt, which in some cases includes an equity component, and preferred equity. It also may invest up to 30% of its portfolio in non-qualifying assets. Its investment activities are focused on industries, such as software and services, health care services, commercial and professional services, financial services, commercial and professional services, insurance services, energy, food and beverage and others. The Company is externally managed by Ares Capital Management LLC (investment adviser).
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Private Credit Defaults May Rise to 10% Amid AI Disruption
- Default Rate Forecast: UBS anticipates private credit default rates will rise from the current 4.4% to between 9% and 10%, with AI-related disruptions potentially adding an additional 3% to 4% default risk, indicating increased pressure on borrowers.
- Industry Vulnerability: Software companies are deemed particularly vulnerable as advancements in AI may slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations, with these pressures expected to intensify toward the end of 2026 and into 2027.
- Market Impact Comparison: UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared to 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds, highlighting significant variations in default rates across different credit markets.
- Leverage Risk Warning: UBS notes that leverage in private credit and private equity markets totals at least $1.5 trillion, and while credit markets currently support the ongoing AI investment boom, rising defaults could impose greater constraints on funding conditions by 2027.
See More
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- Deepening Unrealized Losses: In Q1 2026, U.S. private credit lenders reported unrealized losses of 2.35% of net asset value, marking the worst quarterly performance since Q2 2022, indicating increased strain on middle-market companies due to higher borrowing costs.
- Pressure on Cash Income: Payment-in-kind (PIK) interest income remained elevated at approximately $477 million, a 2% increase from the previous quarter but below the early 2025 peak of $633 million, highlighting investor concerns over non-cash income.
- Liquidity Risk Warning: Fitch has cautioned that rising exposure to loans with deferrable interest could pressure BDC liquidity if cash earnings are insufficient to cover dividend payments, increasing market uncertainty.
- Market Cycle Shift: Howard Mason from Renaissance Macro Research noted that private credit is entering its first real credit cycle since the Global Financial Crisis, with rising borrowing costs and AI-related pressures on software valuations particularly impacting highly leveraged deals from 2021.
See More
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- Diversified Strategies Drive Profitability: Arougheti emphasized that while high rates pose challenges in certain areas, the company's diversified strategies enable profitable growth in any rate environment, demonstrating resilience and adaptability in its business model.
- Stability in Private Credit Market: Discussing private credit, Arougheti noted that the loan and high-yield markets are not showing significant stress, with Ares' software portfolio representing about 8% of its private credit book, reflecting effective risk management practices within the company.
- Recovery in Direct Lending Activity: Although direct lending activity in the U.S. was slow in Q1, Arougheti indicated that it is now picking up, signaling a recovery in market demand and the company's proactive positioning in the credit space.
See More
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- Risk Premium Disparity: A Reuters analysis reveals that U.S. private credit firms are facing diverse risk premiums, with smaller lenders priced at greater risk, indicating a growing selectivity in a market under borrower stress.
- Spread Data: BCP Investment Corp recorded the highest weighted average option-adjusted spread (OAS) at 680 basis points, followed by Prospect Capital Corp at 449 bps, highlighting market concerns over varying credit quality among firms.
- Market Selectivity: The widening of spreads this year reflects investors' increasing differentiation of BDCs exposed to AI disruptions in SaaS companies, signaling a heightened focus on credit quality and funding risks.
- Rising Default Rates: Fitch Ratings reports that the default rate among U.S. private credit borrowers reached 6% over the past 12 months, the highest since August 2024, indicating a weakening backdrop for the private credit market.
See More
Risks and Opportunities in the Private Credit Market
- Market Growth Context: Over the past decade, the private credit market has gained prominence due to economic expansion and a funding gap created by traditional banks retreating due to regulatory pressures, attracting participation from global alternative investment firms and business development companies, highlighting potential growth opportunities in this sector.
- Performance Analysis: Blackstone has achieved an average net return of 9.4% annually in its non-investment-grade private credit strategies over nearly twenty years, nearly double the returns of the leveraged loan market, indicating the company's strong performance across various economic cycles.
- Risk Management Strategies: Despite potential risks from AI disruption, Brookfield and Blackstone primarily lend against secured real assets such as infrastructure and real estate, ensuring the safety of their investment portfolios and reducing default risks.
- Industry Focus Shift: As concerns grow over unsecured loans to software companies, investors should pay closer attention to risks in these areas, particularly the market changes that AI may bring, ensuring robust investment decision-making.
See More
The Risks and Opportunities in the Private Credit Market
- Rise of Private Credit: Over the past decade, the private credit market has surged due to economic expansion and the retreat of traditional banks, with alternative capital providers like global investment firms and business development companies filling the funding gap, which is expected to drive long-term fixed-income returns.
- Investment Performance: Blackstone has generated a 9.4% net return annually in its non-investment-grade private credit strategies since inception nearly twenty years ago, roughly double the leveraged loan market, demonstrating stability across various market cycles and bolstering investor confidence.
- Risk Management Strategies: Despite facing lower base rates and higher default expectations, Blackstone has designed its funds with low leverage, high current income, and substantial reserves for potential future losses, ensuring resilience during economic fluctuations.
- Focus on Software Sector Risks: While the overall private credit sector performs well, unsecured loans to software companies pose potential risks, particularly due to AI disruptions, prompting investors to closely monitor funds with exposure to this market for higher default risks.
See More
Private Credit Defaults May Rise to 10% Amid AI Disruption
- Default Rate Forecast: UBS anticipates private credit default rates will rise from the current 4.4% to between 9% and 10%, with AI-related disruptions potentially adding an additional 3% to 4% default risk, indicating increased pressure on borrowers.
- Industry Vulnerability: Software companies are deemed particularly vulnerable as advancements in AI may slow revenue growth, weaken pricing power, compress margins, and lead to contract cancellations, with these pressures expected to intensify toward the end of 2026 and into 2027.
- Market Impact Comparison: UBS forecasts private credit defaults of 9% to 10% by the end of 2026, compared to 3.5% to 4% for leveraged loans and 1.75% to 2% for high-yield bonds, highlighting significant variations in default rates across different credit markets.
- Leverage Risk Warning: UBS notes that leverage in private credit and private equity markets totals at least $1.5 trillion, and while credit markets currently support the ongoing AI investment boom, rising defaults could impose greater constraints on funding conditions by 2027.
See More
U.S. Private Credit Lenders Face Deepening Losses
- Deepening Unrealized Losses: In Q1 2026, U.S. private credit lenders reported unrealized losses of 2.35% of net asset value, marking the worst quarterly performance since Q2 2022, indicating increased strain on middle-market companies due to higher borrowing costs.
- Pressure on Cash Income: Payment-in-kind (PIK) interest income remained elevated at approximately $477 million, a 2% increase from the previous quarter but below the early 2025 peak of $633 million, highlighting investor concerns over non-cash income.
- Liquidity Risk Warning: Fitch has cautioned that rising exposure to loans with deferrable interest could pressure BDC liquidity if cash earnings are insufficient to cover dividend payments, increasing market uncertainty.
- Market Cycle Shift: Howard Mason from Renaissance Macro Research noted that private credit is entering its first real credit cycle since the Global Financial Crisis, with rising borrowing costs and AI-related pressures on software valuations particularly impacting highly leveraged deals from 2021.
See More
Ares Management CEO Discusses M&A and Market Outlook
- M&A Performance Exceeds Expectations: Ares Management CEO Michael Arougheti stated that approximately 20% of the company's AUM growth has stemmed from transformational acquisitions, particularly the GCP acquisition, which added significant Japanese real estate and data center development businesses, showcasing the company's strategic success in M&A.
- Diversified Strategies Drive Profitability: Arougheti emphasized that while high rates pose challenges in certain areas, the company's diversified strategies enable profitable growth in any rate environment, demonstrating resilience and adaptability in its business model.
- Stability in Private Credit Market: Discussing private credit, Arougheti noted that the loan and high-yield markets are not showing significant stress, with Ares' software portfolio representing about 8% of its private credit book, reflecting effective risk management practices within the company.
- Recovery in Direct Lending Activity: Although direct lending activity in the U.S. was slow in Q1, Arougheti indicated that it is now picking up, signaling a recovery in market demand and the company's proactive positioning in the credit space.
See More
Diverse Risk Premiums Assigned to U.S. Private Credit Firms
- Risk Premium Disparity: A Reuters analysis reveals that U.S. private credit firms are facing diverse risk premiums, with smaller lenders priced at greater risk, indicating a growing selectivity in a market under borrower stress.
- Spread Data: BCP Investment Corp recorded the highest weighted average option-adjusted spread (OAS) at 680 basis points, followed by Prospect Capital Corp at 449 bps, highlighting market concerns over varying credit quality among firms.
- Market Selectivity: The widening of spreads this year reflects investors' increasing differentiation of BDCs exposed to AI disruptions in SaaS companies, signaling a heightened focus on credit quality and funding risks.
- Rising Default Rates: Fitch Ratings reports that the default rate among U.S. private credit borrowers reached 6% over the past 12 months, the highest since August 2024, indicating a weakening backdrop for the private credit market.
See More
Risks and Opportunities in the Private Credit Market
- Market Growth Context: Over the past decade, the private credit market has gained prominence due to economic expansion and a funding gap created by traditional banks retreating due to regulatory pressures, attracting participation from global alternative investment firms and business development companies, highlighting potential growth opportunities in this sector.
- Performance Analysis: Blackstone has achieved an average net return of 9.4% annually in its non-investment-grade private credit strategies over nearly twenty years, nearly double the returns of the leveraged loan market, indicating the company's strong performance across various economic cycles.
- Risk Management Strategies: Despite potential risks from AI disruption, Brookfield and Blackstone primarily lend against secured real assets such as infrastructure and real estate, ensuring the safety of their investment portfolios and reducing default risks.
- Industry Focus Shift: As concerns grow over unsecured loans to software companies, investors should pay closer attention to risks in these areas, particularly the market changes that AI may bring, ensuring robust investment decision-making.
See More
The Risks and Opportunities in the Private Credit Market
- Rise of Private Credit: Over the past decade, the private credit market has surged due to economic expansion and the retreat of traditional banks, with alternative capital providers like global investment firms and business development companies filling the funding gap, which is expected to drive long-term fixed-income returns.
- Investment Performance: Blackstone has generated a 9.4% net return annually in its non-investment-grade private credit strategies since inception nearly twenty years ago, roughly double the leveraged loan market, demonstrating stability across various market cycles and bolstering investor confidence.
- Risk Management Strategies: Despite facing lower base rates and higher default expectations, Blackstone has designed its funds with low leverage, high current income, and substantial reserves for potential future losses, ensuring resilience during economic fluctuations.
- Focus on Software Sector Risks: While the overall private credit sector performs well, unsecured loans to software companies pose potential risks, particularly due to AI disruptions, prompting investors to closely monitor funds with exposure to this market for higher default risks.
See More
