Why are investors rushing to get out of private credit?
The private credit industry has been thrown into chaos over the last few months, as powerhouse firms continue to deal with a rise in investors seeking to withdraw their money.
A number of debt funds managed by firms agreed to lift redemption requests after mounting pressure from customers, and the pressure is not expected to slow down.
Over a week ago, Blackrock limited withdrawals from a flagship $26bn debt fund after a surge in redemption requests, while rival Blackstone also lifted the usual five per cent redemption limit on its $82bn BCRED fund.
Blue Owl, JP Morgan and Clearwater have also been rocked by the crisis.
Jitters have spilled out onto Wall Street after a score of wealthy individuals sought to pull capital out of some of the industry’s largest names in the first financial quarter.
Some funds are now tightening their purse strings, causing investor anxiety to grow.
The dynamic has caused debate among industry figures, with former Goldman Sachs’ boss Lloyd Blankfein warning he “smells” signs of another financial crisis, while others expressed perplexity at people’s actions.
But what’s caused some investors to run for the hills?
What put investor’s nerves on edge?
Private credit used to be dominated by institutional investors including insurers and pension funds, but recently some firms, such as Blackstone and Blue Owl, have opened their doors to wealthy individuals after sensing an opportunity.
Courting retail investors often comes with the promise of regular withdrawals, with funds dubbed ‘semi-liquid’ having no formal end date.
The products attracted nearly $200bn since 2021, but it means if all individuals rush to the exit, firms have to cough up a considerable amount in a short space of time – or lock it down.
Private credit firms use money from investors to lend to companies, making money back on interest earned, with many betting on the software industry.
Trouble for the industry began in September 2025, following the back to back bankruptcies of auto lender Tricolor and car-part maker Firstbrands, as fears grew that AI could knock out traditional software as well as lending standards in some areas of the market.
Sentiment soured further as investors became increasingly fearful that the software and technology firms that make up a large portion of the industry’s loan portfolios were uniquely vulnerable to being replaced or disrupted by AI.
The ongoing Middle Eastern conflict has also raised worries, with rocketing oil prices threatening to feed into inflation, piling pressure on central banks to keep interest rates higher which in turn increases debt servicing costs, reducing their ability to repay.
Mara Dobrescu, senior principal at Morningstar, said: “Recent selloffs in listed private credit vehicles have sharpened retail investors’ focus on a risk that is often underappreciated at the point of sale: liquidity.
“Many semiliquid funds promise regular redemption windows, but the loans they hold are inherently long‑dated and not readily tradable.
“When sentiment turns and redemption requests rise, that mismatch becomes very visible, and is understandably unsettling for investors who assumed access to their capital would be routine rather than conditional.”
Where are they going?
The selloff has left those investors still with capital allocated in private credit funds to debate how much risk – or pain – they are willing to stomach.
Many are retreating back to the safety of liquid assets, such as stocks and bonds, but others are eyeing the European private credit market which is yet to see the “same scale of redemption pressure” as parts of the US, or emerging markets.
Others are becoming even more cautious, opting to flee the investment market altogether for the safety of cash or fixed-income products.
Dobrescu said: “Semiliquid structures are designed to protect remaining investors by slowing or suspending withdrawals during periods of stress.
“That mechanism can be sensible from a portfolio management perspective, but it also means investors need to be realistic – these are not substitutes for daily liquid bond funds or cash‑like instruments.
“As a result, some retail investors are reassessing how much illiquidity they are willing, or able, to tolerate.
Semiliquid private credit can play a role in a portfolio, but only for capital that does not need to be accessed for many years. When products are used outside that context, periods of market stress can quickly expose a gap between expectations and reality.
But as many funds hit their redemption cap and slow outflows, some investors will have to ride out the wave of volatility, or pray for an exit.