Investors rush to exit software-heavy private credit vehicles as discounts widen
Money is trying to leave private credit just as the banks that fuelled the boom start to turn down the leverage tap.
Private credit – loans from non-bank lenders to often riskier corporate borrowers – has grown into roughly a US$2tn market.
Reuters reported, citing Morningstar, that business development companies (BDCs), a key entry point for retail investors, now trade at about 78 cents on the dollar of reported assets, compared with 85 cents at the start of the year and roughly a dollar in early 2025.
Those discounts show investors do not fully trust stated values.
The pressure is sharpest at some of the largest vehicles.
FS KKR Capital Corp trades at 51 cents per dollar of assets, Blue Owl Technology Finance Corp at 68 cents and Prospect Capital Corporation at 44 cents, according to data from Raymond James reported by Reuters.
Carlyle’s Secured Lending fund trades at 68 cents and Blackstone’s Secured Lending Fund at 88 cents, while even the biggest BDC – a US$31bn fund run by Ares Management – trades at 94 cents on the dollar.
Morningstar’s Jack Shannon told Reuters that investors seem to believe the sector’s “best days are behind it” after rapid growth “forced firms to compete” by offering higher returns or loosening protections.
The Wall Street Journal reported that Cliffwater told clients investors in its flagship US$33bn fund asked to redeem 14 percent of their money this quarter; the fund will pay out about half, with the rest pushed to at least the next quarter.
The Journal said Cliffwater built the product largely for individuals, using its private-credit indexes to help sell exposure to portfolios of corporate loans and other private-credit funds.
Many private-credit vehicles cap redemptions at a set share of assets – often around 5 percent a quarter.
Blue Owl last month allowed investors to withdraw 15 percent from a technology-focused private credit fund that normally limits redemptions to 5 percent.
Blackstone’s US$82bn credit fund recorded net withdrawals for the first time and allowed redemptions of about 8 percent.
BlackRock and Morgan Stanley kept to their 5 percent caps even when investors asked for more.
Cliffwater debated keeping its usual 5 percent limit before raising it to 7 percent, partly to avoid looking less generous than competitors, a person close to the firm told the Journal.
Cliffwater said its fund returned 0.74 percent this year after fees and nearly 9 percent last year with minimal losses, and it blamed higher redemptions on “unfounded media hysteria.”
Hedge-fund manager David Rosen of Rubric Capital Management took the opposite view, warning in a letter reviewed by the Journal that he sees a “bank run” risk in private credit and calling Cliffwater a possible “canary in the coal mine”.
Reuters separately reported that non-traded BDCs that offer limited quarterly liquidity are also under pressure, with several restricting withdrawals.
Morgan Stanley limited redemptions at one private credit fund after investors sought to pull almost 11 percent of outstanding shares, while BlackRock capped withdrawals at a major fund and Blackstone’s flagship vehicle saw a surge in requests.
Blackstone president Jon Gray told Reuters that large institutional investors such as pension funds continue to commit capital.
JPMorgan has started to reprice loans tied to private credit.
The bank reduced the value of some loans to private credit funds after reviewing the impact of market turmoil around software companies, where artificial intelligence raises questions about business models.
CNBC reported that the bank’s Wall Street trading division marked down loans, mostly to software firms, used as collateral in private-credit clients’ financing portfolios, cutting how much those clients can borrow and, in some cases, potentially forcing them to post more collateral.
Reuters said JPMorgan’s credit agreements allow it to “re-mark” valuations when markets dislocate, and that the bank went through its portfolio “name by name and then sector by sector”, with particular focus on software exposure.
The Financial Times reported that the valuation “haircuts” did not trigger margin calls but aimed to reduce available credit pre-emptively.
The FT described this as a “shot across private credit’s bow”.
The Wall Street Journal, citing Moody’s Ratings, reported that US bank loans to non-depository financial institutions, including private-credit firms, reached US$1.2tn by mid‑last year, nearly triple a decade ago.
The Journal said banks are re‑examining loan books and collateral terms; some bankers expect to become more conservative or step back, though they do not yet see a systemic problem.
Higher-yielding collateralised loan obligation (CLO) bonds held by private-credit funds fell 4.1 percent in February after 1 percent gains in January and December, as funds sold what they could to meet redemptions.
The Financial Times said the chair of Partners Group warned that private credit default rates could double in coming years, with lenders exposed to the full downside of AI-driven disruption and only limited upside.
Yet assets keep growing.
Reuters, citing law firm Eversheds Sutherland, said around 50 traded BDCs now hold more than US$150bn, while over 100 non‑traded BDCs hold another US$270bn.
