Why Analysts Are Bearish On Private Equity Stocks After First Brands' Collapse

The hangover from the First Brands bankruptcy may be far from over for the private equity industry.

While Wall Street's rally continues to break records, private equity stocks remain under pressure. Analysts now say the pressure may not ease soon.

In a note shared Tuesday, 22V Research's analyst Bill Hebel said private equity firms remain particularly exposed to the weakest parts of the consumer credit spectrum.

Private Equity Still Under Pressure After First Brands Fallout, 22V Research Warns

In a research note shared on Tuesday, Bill Hebel of 22V Research stated that private equity firms are more exposed than banks to the weakest segments of consumer credit.

That vulnerability, he noted, ties them closely to the same structural pressures that helped topple First Brands—slowing income growth, the rollback of Affordable Care Act (ACA) benefits, rising tariffs and tighter immigration policies.

"Given the headwinds facing the low-end consumer—slowing labor income growth, the One Big Beautiful Bill’s ACA rollbacks, tariffs and immigration policy—going long high-end credit and short low-end credit is interesting right now," Hebel said.

Regional Banks vs. Private Equity Firms

The latest 22V analysis builds on a trend that's been emerging since First Brands' $10 billion bankruptcy last month.

Despite the rate cut from the Federal Reserve and record equity valuations, private equity giants such as Blackstone Inc. (NYSE:BX), Apollo Global Management Inc. (NYSE:APO) and KKR & Co. Inc. (NYSE:KKR) have dropped more than 10% in less than two weeks.

The slide began after First Brands' $10 billion bankruptcy, which exposed how complex debt structures, off-balance-sheet financing and overlapping claims can mask instability in private credit. While the collapse doesn't appear to pose systemic risk, 22V says it highlights structural weaknesses that investors can't ignore.

"We have high conviction that the low-end will not negatively impact the economic cycle," the firm said. "But it will have an impact on equity internals."

In other words, the economy may hold up—but not every sector will.

Chart: Two Weeks of Pain For Private Equity Stocks

A Macro Divide: High-End vs. Low-End Credit

Hebel said the current environment "favors high-end over low-end consumer credit," reflecting the widening gap between financially secure households and those more vulnerable to inflation and policy shifts.

22V's trade idea mirrors that divide. The firm recommends going long SPDR S&P Regional Banking ETF (NYSE:KRE)—seen as a proxy for stronger credit quality—and shorting an equally weighted basket of private equity stocks: Apollo Global Management Inc., Ares Management Corp. (NYSE:ARES), Brookfield Corp., (NYSE:BN) Blackstone Inc., KKR & Co. Inc. and Blue Owl Capital Inc. (NYSE:OWL).

Hebel added that if 22V's forecast for higher 10-year Treasury yields materializes—driven by rising deficits and elevated term premiums—macro headwinds for private equity firms will likely persist.

Cracks Beneath The Surface

The collapse of First Brands may have stemmed from company-specific issues, including allegations of fraud and poor due diligence, but its broader implications have rippled across the credit landscape.

For now, investors continue to chase yield in a market still priced for perfection.

Wall Street's main indexes sit at record highs, credit spreads remain tight and risk appetite shows few signs of fading. But the First Brands fallout suggests that in parts of the credit market—especially private equity—beneath the shine, the foundation may be shifting.

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