“When the music stops, in terms of liquidity, things will be complicated.”
Chuck Prince, chief executive of Citigroup, to the Financial Times, July 2007
Private credit is one of the great finance stories of the last decade. Mid-sized companies borrow directly from funds run by firms like Blackstone, Apollo, Ares and Blue Owl instead of from banks, and Moody’s expects the market to pass $2 trillion this year. For years the money came from pension funds and insurers, who can wait a decade. Then the industry found wealthy individuals and built them semi-liquid funds: ask for your money back any quarter, and the fund pays out up to about 5% of its shares. Up to. In 2026, investors discovered how much work those two words do.
Our argument in one line: the liquidity was never in the loans, it was in the fund’s promise, and the promise had a cap.
In short
- In 2026 investors asked to withdraw roughly twice what these funds pay out, so most got back only part of their money.
- Defaults hit a record 6.3% on Fitch’s measure, but estimates range from 2.4% to over 10%. That uncertainty about what the loans are worth keeps the queue long.
- This is not a banking crisis, and the caps worked as designed. But semi-liquid can mean waiting several quarters for your money.
Form an orderly queue
The rush started in the first quarter. According to the Financial Times, investors asked to pull $20.8 billion from these funds and just over half was paid. Blackstone met every request at its flagship BCRED fund, but only after temporarily raising its limit and putting in $400 million of its own and its employees’ money. In the third quarter the queue was shorter but still out the door.
Do the maths from the investor’s side. At Blue Owl’s flagship credit fund, requests were 16.8% of shares and about 30% of each request was paid. Ask for $100,000 and you got about $30,000 this quarter, with the rest back in the queue. Apollo says investors who asked in 2026 will have received about 75% of what they wanted so far. Fitch’s average request fell from 10.3% to 9.8%, and part of that is the same people asking again, so new demand to leave is easing. Blackstone’s Jon Gray calls the caps “a feature, not a bug”, and he is right that they stop fire sales. Carlyle’s head of wealth was more candid: “semi-illiquid” might be the better label.
Default settings
The loans are also getting worse. Fitch’s US private credit default rate rose from 5.6% at the end of 2025 to a record 6.3% in August, and stayed there in September.
The type of default matters more than the level. In the year to August, 47% of Fitch’s default events were interest deferrals or PIK swaps, where a borrower pays interest with more debt instead of cash. For a fund, PIK still shows up as income, but no cash arrives: the reported yield looks fine while the borrower’s debt quietly grows. And because these loans pay floating rates, the Fed’s September hike went straight onto borrowers’ interest bills. The smallest ones, with under $25 million of annual operating profit, already default at 12%.
Lies, damned lies and default rates
Ask how bad things are, and the answer depends on whom you ask. Proskauer’s index says 2.4%. Fitch says 6.3%. Valuation Research Corporation, which also counts loans quietly amended to avoid a default, estimates a shadow rate above 10%.
None of these is wrong; they count different borrowers and events. The problem is the spread itself. These loans do not trade, so their value is set by models and by the managers, once a quarter. When the experts cannot agree on how many borrowers are failing, investors reasonably wonder whether the fund’s reported value is a little generous. That doubt, not any single default, is what fills the queue.
Mind the gap
The stock market offers a second opinion. Some private credit funds are listed, and in February nearly 50 of them traded at an average discount of more than 20% to their net asset value (NAV). On 27 October Ares Capital agreed to buy Apollo-managed MFIC at about 85% of its latest NAV.
Careful with the maths: these funds borrow, so a 15% discount on the shares means the loans underneath are valued only a few percent lower. But a few percent is enough. If the market values similar loans at roughly 94 cents and your non-traded fund still says 100, the first investor out gets 100 and the last one may get 94. That is the textbook recipe for a queue.
A walk, not a run
This is not a banking crisis. The funds are not banks, nobody’s deposits are at risk, and the caps did their job: they prevented a fire sale. Institutions are still buying, and Blue Owl just raised a record $5.6 billion for its credit funds in one quarter. But a selling point has broken, and it matters beyond Wall Street, because private markets are now being sold to individual savers everywhere, Europe and Switzerland included. The pitch is bond-like income, low volatility and an exit when you need it. The low volatility turns out to be partly prices that are rarely tested, and the exit works only if not everyone uses it. For another side of the same lending boom, see our piece Cloudy With a Chance of Default on the debt behind AI data centres.
Our view: private credit can still earn its keep, but only with money you can lock away for years. Treat “quarterly liquidity” as a best case, not a promise, and compare the fund’s reported value with what listed peers trade at before you buy.
Exit strategies
- Fourth-quarter withdrawal requests, out in December and January. A third straight fall would suggest the worst is over.
- Listed fund results in November. Watch the loan valuations and the share of income paid in kind.
- The Fed, 9 December. Another hike lands on exactly the borrowers who are struggling.
- The maturity wall. KBRA data suggest about 40% of direct loans come due between 2027 and 2029, to be refinanced at today’s higher rates.
In 2007 Chuck Prince warned that when the music stops, in terms of liquidity, things will be complicated. In private credit the music has not stopped. It has just got quieter, and a lot of investors have found out the exit is narrower than the brochure said. Semi-liquid, fully stuck. ■
Wall Street to English
| Term | What it means |
|---|---|
| Private credit | Loans made directly by investment funds to companies, without a bank in the middle. |
| Semi-liquid fund | A fund that offers regular withdrawals but caps how much it pays out each period. |
| NAV | Net asset value, what a fund says its holdings are worth per share. |
| PIK | Payment in kind. The borrower pays interest with more debt instead of cash. |
| Default rate | The share of borrowers that fail to meet their debt obligations over a period. |
Sources
- Moody’s private credit 2026 outlook (Trade Treasury Payments): https://tradetreasurypayments.com/articles/private-credit-growth-to-reach-4-trillion-by-2030-says-moodys-private-credit-2026-outlook
- AltsWire, Blue Owl sells loans and halts OBDC II redemptions, Feb 2026: https://altswire.com/blue-owl-sells-1-4b-in-loans-halts-obdc-ii-redemptions-and-shifts-to-capital-returns/
- PipelineRoad, Private credit funds faced over $20bn in redemption requests, 9 Apr 2026: https://pipelineroad.com/news/20260409-private-credit-funds-faced-over-20bn-in-redemption-requests-
- Tiger/Breakingviews, BCRED meets first-quarter requests, 3 Mar 2026: https://www.itiger.com/news/2616327275
- Crowdfunded Wealth, Blue Owl Credit Income Corp redemptions 2026: https://www.crowdfundedwealth.com/articles/blue-owl-credit-income-corp-ocic-redemptions-2026
- WMBD/Reuters, Apollo private credit fund redemption requests ease, 22 Sep 2026: https://wmbdradio.com/2026/09/22/apollo-private-credit-fund-redemption-requests-ease-in-third-quarter/
- SEC, Ares Strategic Income Fund tender offer filing, 24 Sep 2026: https://www.sec.gov/Archives/edgar/data/0001918712/000110465926110205/tm2625856d1_exh-a1vii.htm
- AltsWire, BCRED caps Q3 repurchases at 5% as requests hit $4.3bn, 3 Sep 2026: https://altswire.com/bcred-caps-q3-repurchases-at-5-as-requests-hit-4-3b-about-10-of-shares/
- AltsWire, BlackRock’s BDEBT clears 5% cap while HLEND prorates again, 11 Sep 2026: https://altswire.com/blackrocks-bdebt-clears-5-tender-cap-while-hlend-prorates-again/
- InvestmentNews, Pace of investors selling non-traded BDCs slows (Fitch), 13 Oct 2026: https://www.investmentnews.com/alternatives/pace-of-investors-selling-nontraded-bdcs-slows-but-remains-significant-according-to-fitch/268574
- Invezz, Blackstone’s withdrawal cap, 4 Jun 2026: https://invezz.com/news/2026/06/04/why-is-blackstone-stock-gaining-despite-a-withdrawal-cap-on-its-flagship-fund/
- ThinkAdvisor, Leaders seek to address big question mark around private markets, 1 May 2026: https://www.thinkadvisor.com/amp/2026/05/01/leaders-seek-to-address-big-question-mark-around-private-markets/
- Funds Society, US private credit default rate continues to climb (Fitch), 2026: https://www.fundssociety.com/en/news/alternatives/u-s-private-credit-default-rate-continues-to-climb/
- Investment Executive, Fitch private credit default rate, 30 Oct 2026: https://www.investmentexecutive.com/?p=118587
- Valuation Research Corporation, Private credit trends Q3 2026: https://www.valuationresearch.com/insights/private-credit-trends-q3-2026/
- Alternative Credit Investor, Proskauer default rate falls for second quarter, 29 Oct 2026: https://alternativecreditinvestor.com/2026/10/29/us-private-credit-default-rate-falls-for-second-consecutive-quarter/
- Barron’s via Tiger, BDC discounts, Feb 2026: https://www.itiger.com/news/2614723033
- Barry Popik, on Chuck Prince’s FT interview of 9 Jul 2007: https://barrypopik.com/blog/we_have_to_dance_until_the_music_stops
- Mercer Capital, BDCs and fair value marks in M&A, Oct 2026: https://mercercapital.com/insights/newsletters/bank-watch-newsletter/2026/october-2026-bdcs-and-fair-value-marks-in-ma/
- Alternative Credit Investor, Blue Owl redemption requests fall again in Q3, 30 Oct 2026: https://alternativecreditinvestor.com/2026/10/30/blue-owl-private-credit-redemption-requests-fall-again-in-q3/
