The redemption halt at global private credit manager Blue Owl has brought renewed attention to the risks of "shadow banking." Shadow banking refers to funding intermediaries or products such as private credit funds that perform bank-like functions but are not subject to strict regulation and supervision.
With market volatility heightened by the Middle East war, some analysts say that, although attention has been relatively muted, a checkup is needed because the issue could deliver a shock to financial markets over the long term.
Private credit carries latent risk because assets are valued based on a fund's internal standards without market pricing. Because losses are not reflected immediately and are delayed by design, if problems arise they can erupt all at once. In particular, liquidity is low, making immediate cashing-out difficult even when investors seek redemptions, and a surge in redemption requests can lead to a "fund run." That is why the recent Blue Owl episode is drawing comparisons to structural risks reminiscent of the 2008 financial crisis.
The private credit market was once dominated by institutions, but investors now include pensions, retail investors, and high-net-worth individuals. As a result, there is concern that market shocks could spill over beyond financial markets into the real economy, including dampened consumption. In addition, private credit funds use leverage through borrowing and structured products, so losses could widen if interest rates rise and the economy slows at the same time.
Korea's financial market is not free from these effects. According to the Financial Supervisory Service, overseas private credit funds sold through securities firms amount to about 17 trillion won, with retail sales estimated at about 500 billion won. Including investments by the National Pension Service and Korea Investment Corporation (KIC), more than about 38 trillion won is estimated to be exposed to the private credit market.
Insurers and securities firms also have exposure. The Financial Supervisory Service (FSS) estimates insurers' related exposure at about 2.85 trillion won. If future distress materializes, related loss recognition and a decline in operating returns will be unavoidable.
Still, financial authorities view the current situation as a "manageable risk" rather than a "crisis." In the case of insurers' exposure, it amounts to only about 2% of total assets, so even if it all goes bad, the impact on the risk-based capital (K-ICS) ratio would be limited, they said.
The market reaction remains limited. LS Securities said share prices of major private credit managers have moved sideways after plunging, and while financials are weak, their additional declines relative to the market have not been large.
Experts say the issue should be approached as a mid-to-long-term risk factor rather than a short-term shock. Jeon Bae-seung, an analyst at LS Securities, said, "Much of the risk from the private credit issue has been revealed, and if war-related uncertainty eases, foreign selling could reverse around the first-quarter earnings season," adding, "First-quarter results for financials should be positive thanks to banks' net interest margin (NIM) gains, insurers' improved spread between investment yield and assumed interest, and increased fee income at securities firms from a surge in trading value."
Still, structural vulnerabilities in the private credit market remain. Korea has also recently introduced business development companies (BDC), ushering the private credit market into an early growth phase.
An Ye-ha, an analyst at Kiwoom Securities, said, "The private credit market must be assessed across four axes at once: the BDC discount rate, fundamentals, the macro credit environment (default and arrears rates), and leverage conditions (LTV)," adding, "In phases when these indicators deteriorate simultaneously, concerns about a fund run can intensify, so continuous monitoring is needed."