As Private Credit Sparks Selloff, This May Be the Smart Contrarian Bet

The alternative investment space has been adversely affected in recent months by increasing worries around private credit.

Concerns began late last summer with the unexpected bankruptcies of First Brands and Tricolor Holdings. This triggered some significant write-offs at banks such as UBS and Jefferies Financial Group Inc. (JEF) .

These ripples to the credit markets soon faded into the background, however. Then in the back half of February, Blue Owl Capital (OWL) restarted this worry cycle by gating redemptions from investors.

In March, Cliffwater, Blackstone (BX) , Apollo Global Management (APO) , Morgan Stanley MS and others also gated redemptions at the large private credit funds they manage. JPMorgan Chase (JPM) also marked down some loans held as collateral and cut back some lines to private credit funds. The bank, like others, is particularly concerned about loans to the software sector, which is viewed as susceptible to considerable disruption from AI.

This litany of bad news has pushed down the stocks in this space hard, in some cases by 40% to 60%. And that brings us to our trade idea, the venerable KKR & Co. Inc. (KKR) , whose shares have plummeted some 40% from their recent highs in mid-December.

This alternative investment manager is not immune to the increasing troubles in this industry. In late March, a $14 billion private credit fund run by KKR and Future Standard was downgraded to junk by Moody's. However, management has recently stated that it has only 7% exposure to software, and even less to the AI-vulnerable variety. KKR management has also articulated it has very low exposure to tariff uncertainty as well.

Of note, at the end of 2025, KKR had nearly $750 billion in assets under management, or AUM. Of that, private credit assets totaled $135 billion, which consisted of $85 billion of asset-backed financing and $50 billion of corporate credit.

In 2025, the company’s traditional private equity investment portfolio appreciated 14%, while its infrastructure portfolio gained 11%, and its real estate equity portfolio rose 5%. KKR saw a nice boost to AUM during the year as well.

Employees own roughly 30% of the shares in KKR, giving the company a good incentive to not take outsized risks. Insiders have added more than 450,000 shares to their stake in the firm since mid-February.

The consensus earnings growth estimate for KKR is nearly 30% for 2026 on revenue growth of over 30%. With the stock's recent pullback to the low $90s, KKR trades at 14.5 times forward earnings and it sports a small dividend yield. There is plenty of leeway for earnings estimates to come down baked into the stock, in my view.

This is how I took a small starter position in KKR:

Option Strategy

Here is how one can initiate a position in KKR utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.

Selecting the December $85 call strikes, fashion a covered call order with a net debit in the $74.00 to $75.00 a share range (net stock price - option premium). Liquidity is average with the options against this equity.

This strategy provides downside protection of approximately 19% over the trade’s duration, which includes three dividend payouts of $0.185 a share. The strategy also provides upside return potential of nearly 15%, including dividends, even if the stock trades down 5% over its option duration.

For investors that want to be slightly more aggressive, utilize the December $90 call strikes.

At the time of publication, Jensen was long KKR.