Is Wall Street's "hottest business" turning into "the biggest bomb"?

Asset entrapment, valuation crisis, and liquidity exhaustion, the private equity industry on Wall Street is facing a perfect storm.

Private equity giants such as Apollo, Blackstone, and KKR have seen their stock prices plummet more than 20% this year, far exceeding the decline of the S&P 500 index. As the trading deadlock continues, these companies are finding it increasingly difficult to return funds to clients such as pension and endowment funds.

According to analysis from Moody's, the unrealized value of private equity funds for investors has reached record levels, making it harder for these companies to raise new capital.

As "new bond king" Jeff Gundlach warned, the U.S. may be facing a new "subprime crisis," with risks in the private equity market being severely underestimated.

Asset Entrapment, Trading Freeze

Private equity was once one of Wall Street's most stable profit engines, but it is now on the brink of collapse.

According to The Wall Street Journal, even before the tariff chaos stirred up by Trump, private equity firms were already struggling to sell their portfolio companies and return funds to investors. Now, concerns about economic recession and market turmoil have nearly stalled trading activity.

As the trading deadlock persists, private equity firms will find it increasingly difficult to return funds to clients such as pension and endowment funds. According to analysis from credit rating agency Moody's, the unrealized value of these funds for investors has reached record levels, making it harder for these companies to raise new capital.

Hugh MacArthur, chairman of Bain & Company's private equity division, stated, "We are not even in a recession yet, but we are already in an extremely challenging moment." He revealed that these companies hold a record 29,000 companies valued at $3.6 trillion, half of which have been held for five years or longer. Clients' willingness to invest in new opportunities has decreased, leading to a nearly 25% drop in private equity fundraising last year.

Even private equity giant Blackstone is feeling the pain. According to The Wall Street Journal, Blackstone indicated during its first-quarter earnings report that market volatility could lead North American institutional investors to "slow down their decision-making process" due to lower expected returns. Although the company has other rapidly growing businesses, including private lending and private wealth management, its core private equity business faces severe challenges.

Recently, "new bond king" Gundlach warned that the risks of a "new subprime" in the U.S. are gradually surfacing, with risks in the private equity and private credit markets being severely underestimated. He pointed out that many institutional investors, including some large funds, find themselves in trouble due to a lack of liquidity when facing market volatility.

Gundlach further revealed that there are significant discrepancies in asset valuations in the private market, with some institutions potentially overestimating asset values to conceal the true situation, only to be forced to confront reality when bankruptcy notices arrive. These issues suggest that the U.S. financial market may be facing a new crisis, with risks and scale that could even surpass the subprime crisis of 2008