Stop Asking the Wrong Questions About Private Credit
There are causes for concern, but limits on withdrawals aren’t among them.
- By
- June 12, 2026
- CBR - Finance
For the better part of a year, private credit has been the object of many sideways glances and concerned mumbles from financial analysts, who worry the industry may be precariously balanced on the edge of a crisis. Kindled by the unexpected collapse last September of two companies, First Brands Group and Tricolor, that were financed by private credit, these flames of concern have been fanned by the decisions of several private-credit funds to limit how much money investors can withdraw per quarter.
This month, Blackstone capped withdrawals from its $79 billion flagship private-credit fund at 5 percent of shares—the standard quarterly limit—after redemption requests reached roughly 10 percent of net asset value, about $4.4 billion, in the second quarter. The move put Blackstone in line with Apollo, Ares, BlackRock, and Blue Owl, all of which had already imposed similar caps on private-credit withdrawals. Cliffwater separately disclosed that clients had requested to redeem 17 percent of the shares in its $31 billion private-credit fund during the quarter.
Much of the commentary construed these events as a slow-motion run on a $1.5 trillion asset class—the early stages of what JPMorgan Chase CEO Jamie Dimon warned about last October when he said there were “cockroaches” lurking in private credit.
But that interpretation overlooks the purpose of redemption limits. Gates in nontraded business-development companies exist not to manage a crisis but to prevent one.
Banking crises emerge when short-term liquidity claims exceed the system’s ability to meet them in a window measured in days. Private credit is structured differently. Most investor capital cannot leave quickly, and by design. Stress shows up in returns, in fundraising, in the cost of refinancing—but not at any cash window, because there is no cash window to run on.
Whether capped withdrawals are early warnings of a crisis is the wrong question. The more salient questions have to do with how private credit will respond when the financial environment becomes less favorable, as it already has, and when that environment becomes adverse, as it inevitably will. How exposed are banks to private credit? How sensitive are returns to recession-caliber stress? After years of meteoric growth, how will capital in the private-credit market shift as headwinds build? Answering these questions will give us a much more nuanced understanding of what is happening in the market and what investors can expect.
Is the plumbing fragile?
Of the roughly $1.5 trillion in US private-credit equity, $1 trillion–$1.2 trillion sits in closed-end institutional drawdown funds, with capital locked for 7–10 years by law. Another $210 billion sits in business-development companies, and of that sum, roughly $130 billion is in nontraded perpetual vehicles. Even these “perpetual” funds offer only quarterly liquidity, capped at 5 percent of shares. There is no overnight, on-demand claim anywhere in the system.
Bank exposure is similarly contained. US banks committed roughly $95 billion to private-credit funds at year-end 2024, with foreign banks and nonbank lenders adding another $40 billion–60 billion, Federal Reserve data show. Against a $1.5 trillion asset class, this is modest, and it is also the wrong number to focus on, since loans are typically overcollateralized by about 30 percent and sit behind substantial fund equity. They are credit exposures to diversified loan portfolios, not first-dollar bets on individual borrowers. In a stress scenario, banks would absorb loan losses well short of the solvency events that defined 2008.
Private credit can and will lose money. But the loss mechanism is slow. Stress propagates through investor returns over multiple quarters, not through the payment system over days.
Does the math break?
A simple model of returns calibrated to a representative large-scale direct-lending fund—operating with debt of 70–90 percent of its equity and yielding roughly 11 percent before losses—shows what different levels of stress imply for investor returns. Under the base case, the fund returns approximately 9.5 percent net. In a moderate stress scenario in which credit losses rise to 2.5 percent of assets and the spread between the secured overnight financing rate and the cost of bank financing rises by 1 percentage point, the net return falls to about 5.5 percent. In 2008–09 conditions—losses at 4 percent and funding spreads at recession-cycle wides—net return shrinks to roughly 0.9 percent.
Note that it is shrunk, not destroyed. Even in a Great Recession scenario, a diversified senior portfolio does not lose principal. The typical fund’s fee architecture absorbs much of the damage on the way down: The incentive fee self-corrects sharply as pre-incentive income falls toward the fund’s minimum performance threshold.
In an environment in which 10 percent of a loan portfolio is in default, and recoveries—the portion of a defaulted loan the fund can get back—are at 60 percent, that’s a roughly 4 percent decline in the portfolio’s overall value. That is meaningful. It is also a different category of outcome from the wholesale principal destruction across senior loan portfolios that the 2008 comparisons suggest.
Private credit can and will lose money. But the loss mechanism is slow. Stress propagates through investor returns over multiple quarters, not through the payment system over days, and the difference between those two timescales is the difference between an asset class in difficulty and a financial system in crisis.
What should we be worried about?
There are two real concerns that the “next 2008” framing obscures.
The first is spread compression. Headline yields on senior private credit have stayed near 11 percent through a sharp rise in the secured overnight financing rate over the past three years, but the underlying risk premium those funds earn has compressed by roughly 1.3 percentage points against long-term averages and nearly 3 points against the 2020 peak.
The 2023–25 vintages of loans were originated in the most competitive environment on record—hundreds of bidders for every quality deal—and carry materially thinner cushions than the 2018–20 vintages. That rise in base rates masked the deterioration by holding headline yields up even as credit spreads collapsed. If the cycle turns, 2023–25 vintage loans will earn meaningfully less than their origination coupons implied.
The second concern is platform consolidation. Blackstone’s first and second quarters of 2026 are bookends of the same lesson. In Q1, the firm lifted its repurchase cap from 5 percent to 7 percent and injected $400 million of sponsor capital to meet all $3.7 billion of withdrawal requests, a display of balance-sheet flexibility, institutional credibility, and financing capacity that smaller competitors cannot match. In Q2, when redemption requests rose to roughly 10 percent of net asset value, even Blackstone applied the standard 5 percent cap. Capital will migrate toward platforms with the scale, diversification, and sponsor access to absorb pressure across multiple quarters.
The closer historical parallel is not 2008 but the hedge-fund industry after the 2000 dot-com bust and the 2008–09 financial crisis. Many smaller firms exited or consolidated, and capital concentrated at platforms with infrastructure, institutional backing, and diversified distribution. Private credit may follow a similar path. The diversification logic is structural: In fixed income, where gains are capped and losses can extend to the full value of a loan, scale itself becomes part of risk management. A single 200-loan platform delivers more protection from severe losses than five 30-loan specialists do collectively.
The cockroaches Dimon warned about may yet appear. But what is coming is something more familiar than a banking crisis; it’s a sorting—capital concentrating where structure, scale, and sponsorship can absorb stress, and thinning out everywhere else.
Stefan Hepp is adjunct assistant professor of entrepreneurship at Chicago Booth and the author of Private Capital: The Complete Guide to Private Markets Investing (Wiley, 2024).
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