By Bill Alpert

Private-asset stocks have been pummeled for making loans to fund buyouts, even though such lending, for most firms, has shrunk in importance. Sour sentiment on private credit has dragged down stocks like Blackstone and KKR this year by as much as a third, with the concerns centering on direct loans to companies owned by private equity.

That is why many asset managers spent their recent earnings calls explaining that leveraged buyout loans aren't the bulk of their businesses.

The press is fixated on the small slice of private credit that goes to buyouts, said Apollo Global Management CEO Marc Rowan on his May 6 call. "Most of the financial press treats this as if it is the entire story of what's happening in private markets and it is far from it."

Barron's looked at the industry's books and they more or less support Rowan's view. Some $3 trillion is invested in private credit industrywide, with less than $800 billion of that amount in buyout loans at the largest private fund managers. Another few trillion is invested in private equity, real estate, and infrastructure.

Leveraged loan levels vary widely. At Apollo, buyout loans are less than 3% of managed assets. At Ares Management, such loans are 43% of assets. Ares CEO Mike Arougheti reminded investors on the May 1 earnings call that the loans have done well for years, calling the private- credit stock selloff a "bizarre dislocation."

Ares got its start 20 years ago, making buyout loans from its publicly traded business development company Ares Capital. Today, the $30 billion fund -- known as ARCC -- is the largest listed BDC and has turned out an impressive record.

"The return coming out of ARCC has beaten the S&P 500, the syndicated bank loan market, the high-yield bond market, and probably most anything else that people have invested in," Arougheti said on the call.

At the end of March, Ares managed nearly $645 billion. Leveraged buyout lending accounted for $280 billion of the total, with another $143 billion in other kinds of private credit. It has $220 billion invested in private equity, real estate, and data centers used for artificial intelligence.

Ares says that demand for private-credit investments remains robust, especially among institutional investors. Of the $20 billion it raised in the March quarter, $14 billion was for direct lending, and its new credit funds were oversubscribed.

In the $315 billion of total assets managed by Blue Owl Capital, buyout lending accounted for $117 billion, or 37%, at the end of March. The firm's BDC stocks have fallen to steep discounts to their net asset values, while its nontraded BDCs had to limit March-quarter redemptions by investors.

Blue Owl has another 20% of assets in a longstanding business that supplies capital to other asset managers. But its fastest-growing strategy invests in real assets, like data centers and retail locations. Real assets have gone from 16% to 31% of Blue Owl portfolios, in the last four years, and the firm is raising another fund.

Private assets account for just $475 billion of the $14 trillion that BlackRock runs. Some 44% of those private holdings are debt, following last year's purchase of credit fund manager HPS Investment Partners. Nearly two-thirds of the credit assets are in buyout funds, such as the big nontraded BDC known as HLEND.

On last month's earnings call, CEO Larry Fink said institutional demand for BlackRock's leveraged lending funds is strong and accelerating. "There's been a lot of attention on private credit," Fink said, "but the headlines do not reflect what clients are telling us, what our portfolio data shows, or where we see the market going."

One of the worst performing BDC stocks has been FS KKR Capital, which now trades for less than 60% of its $12 billion in holdings. KKR is injecting capital to shore up the stock, after a 10% asset writedown from troubled loans. Still, the BDC and other direct-lending add up to less than 5% of the $780 billion managed by KKR.

Data centers and power generation have overtaken buyout lending as the lead drivers of private credit. Blackstone still has $166 billion in direct lending funds such as the nontraded BCRED -- about 13% of the $1.3 trillion it manages -- but the firm now owns data centers worth nearly that much. It financed 15% of the renewable energy projects in the U.S. last year, says Rob Horn, who heads Blackstone's Infrastructure and Asset Based Credit.

The top five operators of hyperscale AI centers plan $800 billion in capital spending this year. Banks and public markets can't come up with all that money. Private funds are a good fit for these long term projects, says Horn.

"The public markets provide efficiently priced capital, but they don't do speed and they don't do customization," he says.

Between AI, power production, defense, and onshoring, it should be a record year for U.S. capital spending, says Chris Edson, who is in charge of loan origination at Apollo. With relatively low-cost capital from its Athene insurance unit and other insurers, Apollo can lend to investment-grade companies like Intel and Anheuser-Busch InBev.

Credit has grown to 81% of the $1 trillion in assets that Apollo manages, and the majority of the loans are investment-grade.

"LBO finance...for better or worse, that's not really what we do," he says.

Write to Bill Alpert at william.alpert@barrons.com

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May 25, 2026 03:00 ET (07:00 GMT)

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