Is There Opportunity in Private Credit Stocks or Still Too Much Risk?

Investing in the private-credit market can offer high yields, but the downside risks are real and increasingly visible. The main concerns fall into four categories: valuation opacity, liquidity risk, credit deterioration, and structural vulnerabilities.

Bringing the issue into sharper focus, prominent financial leaders, including JPMorgan JPM CEO Jamie Dimon, have warned about the growing risks that the private-credit market poses to the broader economy.

This makes it a worthy topic of whether there is opportunity in private credit stocks, or if there is indeed too much risk ahead.  

What are Private Credit Risks?

Private credit risk refers to the vulnerabilities and potential losses associated with lending in the private credit market, where non-bank lenders provide loans that are not traded on public markets. The core idea is that this market offers higher yields but comes with less transparency, weaker regulation, and higher borrower risk than traditional bank or public debt markets.

Stocks with high exposure to private credit risks are largely concentrated among major alternative asset managers and Business Development Companies (BDCs), particularly those with significant software and technology sector lending.

Software Sector Risk: Many BDCs have about 25% of their portfolios in software, which is vulnerable to AI-induced disruption and refinancing difficulties.

Rising Defaults: Analysts predict potential default rates for U.S. private credit firms could rise significantly, up to 13%, if AI disrupts the software sector.

Bank Contagion: Some regional bank stocks are also facing pressure due to exposure to risky private loans.

Blue Owl Capital is a Stock to Avoid at the Moment 

Landing a Zacks Rank #4 (Sell), Blue Owl Capital OWL is a notable private credit stock to avoid at the moment. Although Blue Owl’s attractive P/E valuation and stock price of $10 a share may be luring to investors, EPS revisions for FY26 and FY27 have continued to trend lower.

Despite trading at just 10X forward earnings, the pullback in Blue Owl stock towards 52-week lows has also been attributed to restrictions on investor withdrawals from one of its private credit funds, Blue Owl Capital Corp II (OBDC II), a retail-oriented private-credit vehicle. Investors can no longer redeem shares on a quarterly basis, reversing earlier plans to reopen withdrawals.

Restricting these quarterly redemption opportunities, referred to as withdrawal windows, that its semi-liquid private-credit funds used to offer, typically allowed investors to request redemptions once per quarter, subject to caps. Recent developments show that these opportunities have been restricted, restructured, or eliminated across key Blue Owl vehicles, which has become a major stress point in the private-credit market in regard to liquidity concerns.

Top Private Credit Stocks to Consider

Although there are currently no buy-rated stocks among the notable private credit providing asset managers, here are three that are standing out with a Zacks Rank #3 (Hold).

Ordered by market cap, these financial firms have strong fundamentals but have experienced a mixed or not overly compelling trend of EPS revisions amid recent private credit risk concerns.

While it may still be better buying opportunities ahead, the long-term risk-to-reward has become more attractive with each of these stocks trading more 30% from their 52-week highs.

1. The Blackstone Group – BX

Stock Price: $114

FY26 EPS Growth Projections: 14%, ($6.37 per share)

Forward P/E Valuation: 17X

Dividend Yield: 5.37%

Headquartered in New York, Blackstone Inc. BX is a leading asset manager of alternative investments and a global provider of financial advisory services. Blackstone has a large software/tech sleeve in private credit & BDCs.

2. Apollo Global Management  – APO

Stock Price: $109

FY26 EPS Growth Projections: 10%, ($9.25 per share)

Forward P/E Valuation: 11X

Dividend Yield: 1.91%

Also based in New York, Apollo Global Management LLC APO is a high-growth, global alternative asset manager and retirement services provider. Apollo is a major direct lender to software and SaaS (Software as a Service) companies.

3. Ares Management – ARES

Stock Price: $116

FY26 EPS Growth Projections: 37%, ($6.53 per share)

Forward P/E Valuation: 17X

Dividend Yield: 3.98%

Headquartered in Los Angeles, Ares Management Corporation ARES is a global alternative investment manager that offers investment solutions across credit, private equity, and real assets to institutional and individual investors worldwide.

Notably, Ares Management has been among the most vocal defenders of software exposure, saying its portfolios are resilient despite pressure in the space.

A Publicly Traded BDC with Strong Demand

It’s noteworthy that BDCs are one of the most direct ways to invest in private credit, as they often benefit from the same tailwinds, floating-rate loans, strong origination pipelines, and investor demand for high yields.

Ares Capital ARCC is one such BDC seeing increased demand as a specialty finance company that primarily invests in U.S. middle-market companies (firms having annual earnings in the range of $10-$250 million).

Being less susceptible to volatility, Ares Capital stock has a tight 52-week range of $18-$23 a share. Bolstering its low Beta, which is currently at the optimum level of less than 1.0, is Ares Capital's lofty 10.13% annual dividend yield. ARCC also trades at an attractive 9X forward earnings multiple, although FY26 EPS is expected to dip 3% to $1.94. For now, Ares Capital stock lands a Zacks Rank #3 (Hold).

Bottom Line & What to Watch Next

Investing in private credit stocks offers a mix of compelling advantages and meaningful risks. The private credit market has delivered higher long-term returns than many public-market strategies, driven by active management, operational improvements, and strategic exits.

In today’s environment — where rates are high but stabilizing, deal activity remains selective, and demand for private credit is strong — these stocks still offer meaningful long-term growth potential. However, they also face near-term volatility driven by macro conditions, especially given their sizable exposure to software investments at a time when sentiment is weakening amid concerns about AI-driven disruption.

That said, here are four key points that investors will want to watch going forward.

1.  Rising defaults among private-credit-backed companies

2.  Valuation pressure if rates fall and floating-rate income declines

3.  Liquidity concerns for semi-liquid funds

4. Regulatory scrutiny of non-bank lenders

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research