UBS Advised Clients to Cut a Private Credit Fund It Helped Build

UBS advised some of its clients to reduce exposure to a Blue Owl private credit fund, a move that helped trigger a wave of withdrawals from a vehicle the bank had been instrumental in setting up, the Financial Times reported. The reversal is a rare public sign of stress inside private credit, the fast-grown business of non-bank lending to companies.

A related strain surfaced in Asia. HSBC is seeking buyers for risky loans held by its Hong Kong subsidiary Hang Seng, an early sign of how the UK bank intends to overhaul the retail lender after taking it private this year. Both cases involve institutions trying to shed credit exposure they had earlier accumulated.

Private credit expanded rapidly through years of loose money, funding borrowers that banks stepped back from. The risk in the model is a mismatch between funds that promise investors periodic liquidity and underlying loans that are hard to value and harder to sell quickly. When a major adviser tells clients to withdraw, that mismatch becomes visible.