The European Central Bank issued a sharp warning Tuesday: if the fast-growing private credit market runs into trouble, insurance companies could take the biggest hit — not banks.

The warning came in a financial stability report published in Frankfurt, but the risks reach far beyond Europe. The same trend has spread rapidly across the United States, especially through retirement and annuity products owned by millions of Americans.

Private credit has become one of the fastest-growing areas on Wall Street.

Instead of traditional banks making loans directly to companies, giant investment firms including Apollo Global Management, Blackstone, KKR, Blue Owl Capital, and Ares Management now raise money from investors and lend it out themselves.

The market has exploded in size over the past decade and is now estimated globally at between $1.5 trillion and $2 trillion.

Most ordinary consumers have never heard of private credit.

But many are already deeply connected to it through life insurance and retirement products.

When consumers buy annuities or retirement-focused insurance products, insurance companies invest those funds in order to generate returns over time. Increasingly, those insurers are putting large portions of that money into private credit loans.

According to the ECB, insurance companies and pension funds now account for roughly 70% of all money invested globally in private credit funds.

European insurers alone hold approximately €211 billion in private credit exposure, while pension funds hold another €52 billion.

The same pattern has accelerated across the United States.

Apollo owns Athene, one of the country’s largest annuity businesses with roughly $344 billion in assets. Athene now represents about half of Apollo’s overall business model.

KKR owns Global Atlantic. Blue Owl owns Kuvare, parent company of Guaranty Income Life and United Life. Blackstone manages significant insurance-related assets through partnerships including Corebridge Financial, formerly part of AIG.

Earlier this year, F&G Annuities & Life disclosed that roughly 20% of its investment portfolio is tied to private credit strategies managed by Blackstone.

U.S. regulators are increasingly paying attention.

In April, the Federal Reserve reportedly began asking major banks for detailed information regarding their lending exposure to private credit firms. Regulators are trying to determine how large the risks could become if defaults begin rising across the sector.

The international Financial Stability Board warned earlier this month that global banks currently maintain roughly $220 billion in direct credit lines to private credit funds, though some private estimates place the figure far higher.

Why the concern now?

Several warning signs have started appearing across the industry.

This spring, investors began withdrawing money from certain funds operated by Blackstone and Blue Owl. Shares of Apollo have also fallen sharply from late-2024 highs.

At the same time, ratings agency Moody’s noted earlier this year that private credit and insurance businesses now account for more than half of the combined operations at Apollo, Blackstone, KKR, and Carlyle.

That growing interconnection means stress in one part of the system could quickly affect the others.

The ECB also highlighted another risk: leverage.

Private credit funds often borrow money themselves in order to make larger loans and boost returns. According to the ECB, European private credit funds borrow roughly 40 cents for every dollar of investor capital, while U.S. funds average closer to 30 cents on the dollar.

That leverage magnifies profits when markets remain stable — but can also accelerate losses when borrowers struggle.

Some investors are warning that ordinary retirees may not fully understand how much exposure their retirement savings now have to private credit markets through annuities and insurance products.

There are also concerns about transparency.

The ECB said banks and regulators often cannot fully see when the same company owes money both to traditional banks and to private credit lenders simultaneously. U.S. regulators including the Treasury Department’s Office of Financial Research have raised similar concerns about visibility into insurance-company holdings.

Despite the growing worries, the private credit industry still has enormous amounts of capital available to lend.

According to the ECB, private credit funds held approximately €507.7 billion in committed but unspent capital as of last September, on top of more than €1.13 trillion already invested.

Wall Street firms continue pushing back against the concerns.

The firms argue their loans are generally backed by company assets and that insurance-company money is naturally suited for long-term lending because insurers do not face the same short-term withdrawal pressures as banks or mutual funds.

The ECB acknowledged that insurers may be structurally better positioned than many investors to hold illiquid long-term loans.

Still, the central bank’s warning Tuesday was direct.

If losses begin building across private credit markets, insurance companies may absorb the damage first — and millions of retirement savers could ultimately sit on the other side of that exposure.

Shares of Apollo, Blackstone, KKR, Ares, and Blue Owl all remain publicly traded on the New York Stock Exchange and have pulled back significantly from their highs reached during the peak of the private-credit boom.

For regulators, investors, and retirees alike, the question is no longer whether risks exist inside private credit.

The question is where the first cracks will appear.

JBizNews Desk — New York

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