Resources/Weekly Insights

Volume 15, Edition 7 | February 23 - March 1, 2026

AI Anxiety and Private Credit Stress

Doug Walters, CFA

Private credit stress and AI-driven market volatility may look like separate stories, but together they offer a clear reminder of how markets behave under pressure—and why discipline, liquidity, and diversification still matter most.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Last week we discussed private credit and the questions emerging around Blue Owl’s restructuring. That story has continued to develop, and the new details fit a broader pattern we think is worth revisiting. At the same time, equity markets experienced a bout of volatility tied to a fresh wave of concern around artificial intelligence (AI). While the headlines are different, both offer a useful reminder of how markets behave under stress and how investors should respond.

The private investment story gets louder

The private credit story we flagged last week has not improved and the developments since then continue to highlight why we have been skeptical of this space.

As a reminder, Blue Owl’s technology‑focused private credit fund saw high investor demand for redemptions, eventually leading to the decision to halt withdrawals. The company’s shares sold off meaningfully. The incident and market backlash was enough to prompt Goldman Sachs to send a letter to its own clients emphasizing that redemption activity in its private credit fund remained “relatively low.”

Then came FS KKR, a private credit fund jointly managed by KKR, which cut its quarterly dividend by more than 30%, exceeding even its own prior guidance. The stock fell over 18% in a single day.

Private credit has long been marketed as an attractive alternative to traditional fixed income, with the argument that longer lockups and limited liquidity insulate investors from market volatility. In benign conditions, that logic can appear sound. In stressed conditions, the underlying problem reveals itself, and investors’ hands are tied.

For our clients, nothing about this changes our approach. We avoided these strategies not because we were waiting to see how the story played out, but because the long‑term evidence never supported the trade‑offs being offered.

The AI “scare trade”

If you are insulated from the daily barrage of AI scare stories… good. Keep it that way. Your portfolio will thank you. If you are not, you might be under the impression the sky is falling. It’s not. As I type, the S&P 500 is down about 0.5% on the week, international stocks are up by a similar amount, fixed income is generally up, as is gold. Pretty unremarkable.

To be fair, underneath those benign numbers was a lot of movement, spurred by, 1) a research note exploring a “left tail risk” dystopian vision of the future where AI’s influence expands more rapidly than expected, and 2) evolving functionality from AI firm Anthropic that casts a shadow on the future need for certain software firms. IBM had a bad week, as did the software, financial services, logistics, and real estate more broadly.

The concern that AI will disrupt specific industries is legitimate and worth taking seriously. But markets are in “shoot first, ask questions later” so take these short term moves with a grain of salt. Remember when home computers were going to make paper obsolete… then we all got printers. Remember the dawn of the internet when Netscape was the king of browsers… then came Internet Explorer… then Chrome. Ask Jeeves?

Transformational technologies have always created winners and losers. The internet triggered a boom and bust and yet the S&P 500 has still delivered about 11% annualized returns to patient investors who held through the noise. We do not expect the AI arc to be smooth. It will be bumpy and exciting. Our approach is to stay diversified, and disciplined… seeking opportunities to benefit from the transformation, while avoiding investments that tie our hands through illiquidity and opacity.

0.5%

Decline in the S&P 500 last week

The dramatic headlines of market disruption this past week were not matched in actual returns, as the S&P 500 just slipped 0.5%… fairly typical for a down week. International, fixed income and gold were all generally up.

Headline of the Week

Careful What You Wish For…

For weeks now, the headlines have felt stuck on repeat. Inflation report here, jobs report there—rinse, repeat, revise. The economic narrative has been dominated by familiar themes, and if anything, the challenge has been to find something new to say about the same old signals. This week cured that.

The conversation abruptly shifted as AI reinserted itself into market psychology, not as a broad catalyst but as a source of discomfort. What had been an almost monotonous cycle of inflation‑and‑Fed commentary gave way to something more jarring: genuine uncertainty about how quickly AI could reshape business models, cost structures, and labor‑intensive industries. The resulting volatility reached well beyond technology, sweeping through areas with meaningful white‑collar exposure and reminding investors that innovation rarely unfolds in straight lines.

Markets wrestled with the realization that enthusiasm for AI’s long‑term potential can coexist with short‑term unease about its disruptive path. That duality (hope and anxiety) echoes a recurring theme: major transitions often raise more questions than they answer.

If the past few months were defined by repetitive data cycles, this week offered something different. Not necessarily clearer, and certainly less predictable. And that, for better or worse, breaks the monotony.

The Week Ahead

The jobs report and Institute of Supply Management’s report (ISM) will be the major market movers at home during the week, however a pollical gathering in China will be more consequential.

Population Control

The first week of a new month will have a job market focus with several employment related reports like the ADP report and the non-farm payroll report on Friday.

Expectations are for 60,000 jobs created and an unchanged unemployment rate of 4.3%.
This would be a significantly lower number of new jobs in February versus the 130,000 we had in January.
Not only is there fear of a downward revision to that January number, but we also get the delayed annual population control adjustment.
The adjustment will revise the civilian population to better align with the census estimates.
Both the expected revision and the population adjustment will murk up the employment picture.
Luckily, we get another jobs report before the next Federal Reserve rate decision.

The Institute

The ISM’s purchasing manager’s index will provide a nice snapshot of the manufacturing and services sectors are doing.

Expectations are that the manufacturing report will continue to demonstrate expansion with a 52.3 reading but decline a bit from the previous report.
The services report will also remain in expansion and is expected to be a little stronger than the January report with a 54 readings.
A reading above 50 is expansion.

2, 5, 15

Two sessions kicks-off in Beijing, this is China’s most significant annual political event.

This will be the fifteenth 5-year plan for China.
Investors will focus on the Growth Target for the economy, which is expected to be revised to 4.5% from the previous 5% and the ratio of deficit to the Gross Domestic Product, expected to be set at 4%.
Outside of the data, investors will look for stimulus direction from the leadership.
The buzz phrase is expected to be “new quality productive forces,” which is supposed to imply a focus on high-tech manufacturing; AI, semiconductors, and green energy to replace the old real estate as the growth engine for China.
There are rumors of the government cooking up a “trade-in” program that will subsidize spending on cars and appliances, to drive domestic demand and an “ultra-long” sovereign bonds issuance to finance infrastructure spending.

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