Hedge funds are ramping up short bets against private credit firms, including Apollo Global Management, Ares Management, and Blue Owl Capital, betting that economic headwinds, and trade frictions will take a toll on the booming direct lending market, according to a report by Bloomberg.
The report cites data from S3 Partners as highlighting that short sellers have notched an estimated $1.7bn in paper profits this year from positions against seven of the largest publicly traded direct lenders.
The short activity reflects growing scepticism around the resilience of private credit markets amid mounting recession risks and ongoing macro uncertainty. While firms like Apollo and Ares have pitched themselves as beneficiaries of volatility – able to fill financing gaps left by retreating banks – their stock prices have declined in recent months.
The International Monetary Fund recently flagged concerns that private credit valuations may not fully reflect the deteriorating credit quality of underlying borrowers, adding further pressure to sentiment around the asset class.
“Alternative asset managers are very exposed if we do have a recession,” said Scott Roberts, senior managing partner at Belvedere Direct Lending Advisors. “If company revenues decline, cash flow suffers, leverage increases – and that puts real stress on loan performance.”
Apollo and Ares declined to comment. Blue Owl pointed to its latest earnings call, where Co-CEO Marc Lipschultz emphasised that tighter credit conditions can actually enhance the appeal of private lenders for borrowers seeking flexibility and certainty of execution.
Still, some short sellers appear to be locking in gains, with S3 noting signs of recent profit-taking as volatility temporarily eased.
