For the better part of five years, private credit was the alternative investment story everyone wanted to tell. Double-digit yields, low volatility, institutional-quality returns packaged in increasingly accessible structures — it was the rare asset class that seemed to offer something for everyone. That story is getting more complicated.
Over the past several weeks, a wave of redemption requests and gated funds has put the $1.8 trillion private credit market under scrutiny it has never faced before. The question worth asking now isn’t whether these are isolated events. It’s what they reveal about a market that grew very fast under conditions that no longer exist.
What's Happening
The sequence of events has been swift. Blue Owl Capital restricted withdrawals from its Blue Owl Capital Corp II fund in February after withdrawal requests surged 200%, and by early March, the firm had moved toward a liquidation plan. BlackRock’s $26 billion HPS Corporate Lending Fund capped redemptions at 5% after investors requested 9.3% of shares back in a single quarter. Blackstone temporarily raised its redemption cap to 7.9% — a record — to meet demand, covering the overage with internal capital. Ares Management has also seen a spike in withdrawal requests.
The market has responded accordingly. Over the past month, Blue Owl shares have dropped roughly 30%, KKR is down 24%, Blackstone has fallen 21%, and Apollo has declined nearly 23% — all during a period when the S&P 500 was off less than 3%.
These aren’t small footnotes. They’re a signal that the confidence premium private credit has traded on is being re-examined.
Why This Is Happening Now
Private credit expanded rapidly in a world of near-zero interest rates, abundant capital, and strong private equity activity. Loans were underwritten with assumptions that worked beautifully in that environment. That environment is gone.
Higher interest rates have made it harder for borrowers to service debt. Several high-profile defaults — including auto financing company Tricolor Holdings and auto parts supplier First Brands — exposed weaknesses in specific loan books and raised broader questions about underwriting standards. The use of payment-in-kind toggles, where borrowers pay interest with additional debt rather than cash, has become more common — a sign that stress is being managed rather than resolved.
The deeper structural issue is the mismatch between what these funds promised and what they can actually deliver. Many retail-targeted private credit vehicles — business development companies and non-traded BDCs in particular — offered quarterly liquidity windows to attract individual investors. The underlying loans are inherently illiquid. When redemption requests spike, managers face a difficult choice: gate withdrawals, sell assets in secondary markets at a discount, or draw on internal capital. None of those options is invisible to the market.
What It Means for Advisors
The first thing worth saying is that this is not 2008. Private credit’s structure is fundamentally different from the leveraged, interconnected bank balance sheets that created systemic contagion in the financial crisis. Default rates, while rising, remain contained. Senior secured structures provide a buffer that unsecured lending does not. Firms with diversified loan books and disciplined underwriting are not the same as firms that chased yield into lower-quality credits during the boom years.
But the stress is real, and advisors who have allocated client capital to private credit — particularly through retail-accessible structures — need to be doing a few things right now.
First, understand the liquidity terms of every vehicle in a client’s portfolio. Quarterly gates, redemption caps, and lock-up provisions are not fine print — they’re the mechanism by which an illiquid asset class is packaged for liquid-ish investors. If a client needs that capital on a specific timeline, the mismatch between what was promised and what is operationally possible matters enormously.
Second, look at the vintage. Investors who want exposure to private credit today may actually be better positioned than those holding legacy funds from 2021 and 2022. New capital entering the market can be deployed at higher rates into deals underwritten with current assumptions. The risk in existing funds is concentrated in loans made when conditions were very different.
Third, pay attention to valuation transparency. Unlike public bonds, private credit doesn’t reprice daily. That stability looks good in a client statement, but can obscure deterioration that is real but not yet recognized. The SEC is widely expected to move toward more standardized valuation requirements for private assets — a development worth watching.
The Bigger Picture
Private credit isn’t going away. The structural reasons for its existence — banks pulled back from middle-market lending after 2008, and that gap hasn’t closed — remain intact. But the era of easy returns in the asset class, when rates were low, capital was abundant, and defaults were rare, is over.
What’s left is a more disciplined market. For advisors willing to do the work — understanding structures, stress-testing liquidity assumptions, distinguishing between managers — there will be opportunities. For those who added private credit exposure primarily because the yield looked attractive and the volatility looked low, this is a good time to revisit both assumptions.
