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Fears of rising defaults and a systemic crisis from private credit don’t reflect the underlying fundamentals of private loan portfolios and returns, according to Blackstone’s head of private wealth.

A wave of redemptions is causing fresh concerns about the risks of private credit, with Ares Management, Apollo Global Management and others capping investor withdrawals from their funds last month. Joan Solotar, global head of Blackstone Private Wealth, which manages over $300 billion, said the capital flight isn’t justified by the likely returns and potential losses in individual funds.

“In my view, you’ve had all these calls that the house is on fire, when what we see is maybe a piece of burnt toast,” she said.

Solotar said investors and clients are asking important questions about transparency, loan losses, portfolio exposure to software and liquidity. She said some funds may see lower returns. Yet she said the broader case for private credit and access to private capital remains stronger than ever.

Some of worst-case scenarios published by Wall Street analysts, she said, call for loan defaults of up to 15%. Spread over three years, the loss of total annual return would be about 300 basis points. If credit spreads widen, she said the returns for private credit funds could fall to around 3% to 5%, down from the current 6% to 9% that is common for many funds.

“Is 3% to 5% return a disaster?” she said. “And what’s happening in the public equivalents? Because when I look at the public equivalents, they’re actually down. So we’re still outperforming, and that’s the key. I think it’s a matter of staying calm, understanding what you own, what the real downside is.”

Of course, many bank CEOs, analysts and investors disagree, saying private equity firms are understating the potential risks and exposure. The most cited risk is software firms, which make up a large share of private credit lending and are now seen as vulnerable to disruption from artificial intelligence. The Wall Street Journal recently found that large private credit funds managed by Blackstone, Apollo, Ares and Blue Owl had more exposure to the software firms than their filings suggest.

Solotar said less than 5% of the assets in Blackstone funds are vulnerable to AI. While some investors and commentators have criticized the lack of transparency and disclosure in private credit funds, she said the funds often disclose more loan information than banks.

“The word ‘private’ only relates to the fact that these aren’t publicly traded,” she said. “But it doesn’t mean secret or shadowy. I was a financial institutions analyst for many years, and I will tell you the banks do not let you know how they’re carrying any of their loans. We actually show you at the single, individual loan level. There is so much transparency, and we report that every single quarter.”

Solotar likens the current period in private credit to real estate funds after the pandemic. In 2022, Blackstone limited withdrawals from its $60 billion flagship real estate fund as investors worried about the decline in commercial real estate. Over time, withdrawals stabilized, all redemptions were honored and the property market rebounded.

She said the current “stress test” in private credit will actually prove its value in portfolios over the longer term. Institutional investors have proven for years that private investments provide important balance in a portfolio, with less volatility, longer time horizons and often better long-term returns than publicly traded investments.

The private equity industry’s efforts to expand private credit and private assets into 401(k) plans has come under growing criticism, especially given the current redemptions. Former Goldman Sachs CEO Lloyd Blankfein recently told Bloomberg that putting alternative assets into the retirement portfolios of everyday investors was “crazy.”

“Why are you going into this dangerous territory just to make your business a little bit bigger when that represents such a big potential problem in the future?” Blankfein told Bloomberg. “These securities are opaque and may be riskier than most.”

Solotar said Blankfein’s comments highlighted the need for more education.  

“I think everyone has to be very well educated on what they’re putting in the portfolios, how the structures work, the limits of liquidity, how they interact with other parts of the portfolio,” she said. “And I would ask Lloyd if he has private investments in his portfolio. I’m guessing the answer is yes.”

Solotar said the demand for private investments will only continue to grow as investors seek to mimic the returns and strategies of large institutions, like endowments, pension funds and sovereign wealth funds that have been allocating to alts for decades. Given the vastly larger size of private markets compared to public, the alts revolution is still in its early stages.

Blackstone Private Wealth’s $300 billion in assets today is up from $58 billion in 2017. Solotar said Blackstone aims to grow its AUM to $1 trillion in the coming years.

“I like to say we are not even in the first inning, I think we’re still in spring training,” she said. “When you think about how pension funds are allocated, about a third of their investments are in private. The top foundations and endowments are at similar levels, and the same with family offices. And if you look at retirement accounts, you’re less than 1% or close to zero. So I see this as a very long-term path of travel, with the same trends happening globally, and it is super early.”

United Airlines CEO Scott Kirby reportedly floated the idea of a potential tie-up with rival American Airlines to the Trump administration earlier this year, a suggestion that if acted upon, would create the world’s largest airline.

While the Trump administration has appeared more open to mega deals than its predecessors, such a merger would face heavy regulatory scrutiny with the top four airlines (those two carriers, plus Delta Air Lines and Southwest Airlines) already dominating about 80% of domestic capacity. If they combined, American and United would have a roughly 40% domestic share, according to airline-data firm OAG.

“This would be the biggest of all time. I can’t even see the slightest chance that a court would allow it,” said George Hay, a law professor at Cornell University.

American and United declined to comment on the discussion of a merger, which was reported Monday by Bloomberg. The White House didn’t immediately comment on the reported discussion.

American shares were up 9% on Tuesday morning. Seaport Research Partners airline analyst Daniel McKenzie said he attributed the move “to short covering rather than the market assigning legitimacy to the merger idea.” 

He added that the deal would be “be dead on arrival, though politely reviewed until the public backlash became too deafening.”

If the Justice Department “doesn’t object to that, then what would they object to? It is very hard to imagine a deal of that magnitude and concentration going through,” said Samuel Engel, senior vice president at consulting firm ICF.

He said consolidation allows carriers to better control capacity, which in turn can drive up fares, a key consideration generally with antitrust investigations

An American-United merger would likely require significant divestitures on routes where the two carriers’ combining would mean only one or two airlines are serving that route, said TD Cowen airline analyst Tom Fitzgerald, who said 289 routes fit that criteria now.

The Trump administration has shown a warmth toward mergers in the industry, however.

“Is there room for some mergers in the aviation industry? Yeah, I think there is,” Transportation Secretary Sean Duffy told CNBC’s Phil LeBeau last week, regarding industry consolidation. Duffy said President Donald Trump “loves to see big deals happen, adding that he would “have to review” a tie-up.

Delta and United already account for most of the U.S. industry’s profit.

American had fallen behind both airlines as it struggled to capitalize on higher-spending customers that are driving major airlines’ revenue in recent years. Kirby, whom American fired in 2016, has gone head-to-head with his former employer, including in key markets like Chicago.

The Biden administration challenged two major airline tie-ups, and won. A federal judge knocked down American’s partnership with JetBlue Airways in the Northeast in 2023 and in early 2024, a court ruled against JetBlue’s planned acquisition of Spirit Airlines, which is now in its second bankruptcy.

JetBlue and United formed a partnership that allows customers to book on each other’s airlines but falls short of the schedule coordination under that failed American deal. Kirby has expressed hesitation about taking that deal further.

“I like the partnership with JetBlue,” Kirby said in Boston last month. “I think highly of their team. They’ve got the right DNA and culture, but … we’re doing a great job growing. I feel really good about our standalone.

“Mergers are big and hard and complicated,” he added.