Hedge funds have intensified short selling activity against major private credit lenders in the United States, including Apollo Global Management, Ares Management, Blue Owl Capital, and KKR & Co. According to recent reports, these short sellers have profited by approximately $1.7 billion in 2025 by betting against these direct lenders. The move is driven by growing concerns over inflated loan valuations, increased borrower stress, and the risks associated with payment-in-kind (PIK) debt in a weakening economic environment. Hedge funds are betting that trade wars, a shrinking US economy, and rising strain among borrowers will negatively impact the private credit sector. The private credit market, valued at $1.7 trillion, has seen some assets trading at discounts as deep as 50%. Poor underwriting standards and high levels of PIK or phantom interest, which in some funds have reached 30%, are raising further concerns. Analysts warn that even a small recession could severely impact many private credit funds. The increased volatility in US stock, bond, and currency markets has led to heightened hedging activity. Options data shows elevated demand for downside protection, with SPY and QQQ put skews remaining high and implied volatility rising. Despite some bullish technical setups in indexes such as NDX and NVDA, traders remain cautious amid ongoing market stress. Comments from Hindenburg Research's founder highlight a toxic culture among short sellers, while retail investor distrust of hedge funds persists. Analysts note that the short sellers' actions could impact credit access for businesses if private lenders face substantial losses.