Money Is Flying Out of Private Credit. That’s Bad News for Wall Street.

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0:33Alex Ossola:Money is pouring out of private credit, and some investors are finding it's complicated to pull their cash.

0:39Matt Wirz:Redemption started to go up, and then all of a sudden, investors, at least some of them, woke up to the fact that, oh, wait, I might not be able to get all my money out when I want it. I better put in for it now. And then it just kind of built and built.

0:52Alex Ossola:Plus, a federal judge throws out subpoenas issued to the Federal Reserve in a heavy blow to the Justice Department's criminal investigation into Jerome Powell. And the Pentagon is moving more troops and ships to the Middle East. It's Friday, March 13th. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:18Alex Ossola:Two data points are out today from the Commerce Department on the U.S. economy. GDP for the end of last year was revised down to 0.7 percent growth, well short of the 1.4 percent pace initially reported. And the Personal Consumption Expenditures Price Index, the Fed's preferred measure for inflation, was 2.8 percent in January. That's a slight decline from December, but still above the central bank's target. And those numbers are, of course, before the Iran war, which has raised energy prices. WSJ economics reporter Matt Grossman says that because of the war, this inflation data isn't as helpful to economists and policymakers.

1:54Matt Wirz:As everyone who's driven in the last couple of weeks knows, gas prices are already a lot higher. So I think this report best serves as a baseline for where things stood before the war. Things were already a bit hotter than the Fed wanted in January, and economists are on the edge of their seat to see how much of an increase we get once we get the March data.

2:16Alex Ossola:Matt says the war may affect the Fed's thinking.

2:19Matt Wirz:The Fed in January felt their policy was in a decent place to watch inflation gradually fall back to that 2 % level over the course of the year. And maybe they could find opportunities for a cut or two. Of course, that was before we knew this war in Iran was coming. The fear would be that not only does that translate into higher gas prices, but higher prices for everything else too because so much of what we buy has to get shipped. So at the margin, traders have seen the war news as being more on the pessimistic side for actually getting those rate cuts this year.

3:02Alex Ossola:The continuing war in the Middle East and worries about its economic repercussions weighed on stocks today and pushed up oil prices. Brent crude, the global oil benchmark, rose 2.7 percent to more than$103 a barrel. Since the attacks between the U.S. and Iran started nearly two weeks ago, Brent prices have surged more than 40 percent. The Nasdaq led the day's losses in the U.S. stock indexes, falling 0.9 percent. All three indexes finished lower for the week, with the Dow posting the steepest losses. It ended down 0.2 percent.

3:38Alex Ossola:Private credit has, in recent years, powered massive growth on Wall Street. Now, though, that engine has been sputtering. Investors are trying to pull money out of big funds, endangering firms' future profits. For more on what's driving the run on private credit, I'm joined now by Matt Wirtz, who covers credit for the journal. Matt, to remind people, private credit is loans made by private fund managers to corporations, financial institutions, and sometimes even consumers that were traditionally made by banks. So why this rush of redemptions? Why is this happening and why now?

4:08Matt Wirz:Well, on Wall Street, they love to say, like, what inning are we in? And I think this is a reflection of broader investor angst. There's a sense that valuations are quite high, that maybe we're in like the seventh or the eighth inning of this like boom in both credit markets and also in equity markets. What makes private credit different is that it's mostly sold to individual investors through these funds that, unlike mutual funds, limit the speed at which you can withdraw your investment. And that's because the assets in the funds are these private loans that are actually kind of hard to sell.

4:46Matt Wirz:So it's a structure that makes sense. However, when these products were sold, from what I've heard talking to numerous financial advisors, brokers, some investors were very aware that these funds that they were buying would limit the speed at which they could take out their money. And then some people, they weren't. They were just told, hey, you can get 11 % yield on this, and it's holding really safe senior secured loans. and it's the top-notch asset manager. And that's why we're seeing, I think, the pandemonium that we're seeing right now.

5:21Alex Ossola:Was there a particular catalyst for this or people just sort of woke up one morning and they're like, oh, what's happening to my money?

5:27Matt Wirz:You know, I've been hearing a lot about behavioral economics when I talk to the fund managers and the regulators. This seems to be a lot about investor psychology. There's this belief, I need to get out before everyone else gets out. And the catalyst for this was oddly these like strange little frauds that happened in the credit market, but not just in the private credit market. But there were these companies like First Brands and Tricolor. Those events started to trigger the spidey sense for some investors. Redemption started to go up. And then all of a sudden, investors, at least some of them, woke up to the fact that, oh, wait, I might not be able to get all my money out when I want it.

6:07Matt Wirz:I better put in for it now. And then it just kind of built and built. Most of the analysts that I spoke to think that the next quarter, the second quarter of 26, is going to be worse than the first and then that will likely be the peak. This is a very new industry and it's going through growing pains. There had been this big push last year to start including these kinds of investments in 401ks, for example. And this, what we're seeing now, shows the dangers of doing that without having the right structure and the right education in place.

6:40Alex Ossola:That was WSJ reporter Matt Wertz. Thanks, Matt.

6:43Matt Wirz:All right. Thanks, Alex.

6:45Alex Ossola:Coming up, the latest on Iran and the Justice Department's investigation into the Fed, plus how prediction platforms are supercharging Oscars bets. That's after the break.

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7:33Alex Ossola:The Pentagon is moving more Marines and warships to the Middle East as Iran steps up its attacks on the Strait of Hormuz. Three U.S. officials said that Defense Secretary Pete Hexeth has approved sending units that typically consist of several warships and 5 ,000 Marines and sailors. In an interview with Fox News Radio that aired today, host Brian Kilmeade asked President Trump how he'll know when the conflict is over.

7:57Matt Wirz:When I feel it. Okay. I feel it in my bones.

8:00Alex Ossola:As for the refueling aircraft crash that we told you about this morning, all six crew members who were aboard the plane have now died. The U.S. military says 13 service members have been killed in action during the Iran conflict.

8:17The U.S.

8:18Alex Ossola:and its European allies are diverging on Russia. Europe sees Russia as a greater threat than Iran. German Chancellor Friedrich Merz became the latest European leader to criticize the Trump administration today. He said the U.S. decision to temporarily lift Russian sanctions to ease pressure on oil prices was a bad one.

8:37Matt Wirz:As you all know, we had a videoconference with the G7 leaders on Wednesday, and six out of seven were clearly the opinion that we should not release the sanctions against Russia. And we were a little bit surprised that we heard this morning that the American government decided differently.

9:04Alex Ossola:The Iran war has helped increase Russian energy revenues thanks to the surge in oil prices. Treasury Secretary Scott Besant said the sanctions relief is designed to increase the global reach of the existing supply of oil. And a federal judge ruled today that a pair of subpoenas the Justice Department issued to the Federal Reserve were improper, a big blow to the government's investigation. U.S. Attorney Jeanine Pirro opened the criminal investigation into Fed Chair Jerome Powell to examine whether Powell gave false testimony to Congress last summer. The judge, an Obama appointee, wrote in his decision that the purpose of the subpoenas was, quote, to harass and pressure Powell either to yield to the president or to resign.

9:44Alex Ossola:Pirro said she would appeal.

9:50Alex Ossola:And finally, the Oscars are this weekend. There's long been a tradition of betting on the winners at house parties or in office pools. Now that's getting turbocharged on prediction market platforms like Kalshi and Polymarket. And people are putting serious money behind it. Between Kalshi and Polymarket, volume on Oscars bets has topped$100 million and growing. I'm joined now by WSJ Entertainment reporter John Jurgensen. John, what are the kinds of things that people are betting on on these platforms?

10:19Matt Wirz:Well, think of the fact that there are 24 official Oscar categories, so they're betting on all of those categories. But then there's all kinds of extra stuff, including what people might say, who might show up, et cetera, et cetera. Pretty much anything you can imagine that might be at the Oscars, people are betting on it.

10:36Alex Ossola:In terms of individual bets, did it sound like people were really putting a lot of money behind this, or is it just kind of like a hobby thing to do?

10:43Matt Wirz:Well, most people that I spoke to who are really just dabbling in the prediction markets for the first time are putting down the kind of wagers that you would see at your annual Oscar parties. Five bucks, 10 bucks, 20 bucks here and there. Not huge risks, but they're hoping for some upside if like upsets happen in the race itself.

11:03Alex Ossola:Who are bettors banking on for best picture, which I assume is one of the biggest categories?

11:08Matt Wirz:It is in terms of trading volume. that is definitely the biggest category. So yeah, the trading and betting is really circulating around the two frontrunners, Sinners, and one battle after another.

11:20Alex Ossola:And what about you? Where's your theoretical money going on the Best Picture race?

11:25Matt Wirz:I do think it's going to be one battle. Paul Thomas Anderson's a really respected filmmaker and people think it's kind of like, quote unquote, his time. But Sinners has made a really strong showing and it really could pull someone out.

11:37Alex Ossola:That was WSJ Entertainment reporter, John Jurgensen. Thanks, John.

11:41Matt Wirz:You're welcome.

11:42Alex Ossola:And that's What's News for this week. Tomorrow, you can look out for our weekly markets wrap-up, What's News in Markets. Then on Sunday, we'll be discussing how American women are doing professionally and economically. That's in What's News Sunday. And we'll be back with our regular show on Monday morning. Today's show was produced by Pierre Bien-Aimé with supervising producer Tali Arbel. Michael LaValle wrote our theme music. Aishel Al-Muslim is our development producer. Chris Zinsley is our deputy editor. and Fulana Patterson is the Wall Street Journal's head of news audio. I'm Alex Osula. Have a great weekend and thanks for listening.

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