When the exit is smaller than the entrance
I wasn’t going to write about private credit this week. I was all set to get stuck into a piece about maritime insurance. I even had a name for it: The Underwriters of Hormuz. But it’s not often three of the top four stories in the Financial Times line up about a theme we’ve explored, so here we are (though if readers want to discuss what I learned about maritime insurance, drop me a line.)
We’ve discussed the rise of retail money in private credit before. By some accounts, vehicles set up to cater to wealthy individuals now make up 30% of the direct lending market. Many of those investors now want out. And as others watch redemption requests go in, they wonder if they shouldn’t ask for their money back too. According to data from Robert A Stanger & Co, redemption requests are running close to 8% this quarter, up from an average 1.3% in 2024.
It’s been three years since Silicon Valley Bank reminded us what a bank run can look like. One of the lessons from that episode is that historic assumptions about the stability of retail funding need updating for the social media age. WhatsApp groups, X/Twitter and the like give retail investors coordination mechanisms with far greater reach and immediacy than ever before. The old logic that a diversified base of small investors was inherently stable no longer holds when information – and panic – spreads instantly.
Private credit is structured differently to banks. Without the blanket of deposit insurance, managers employ other means to push out the duration of their funding. Typically, they impose redemption limits, conventionally 5% per quarter. The problem is that those limits are now being breached. Last week, BlackRock said that it had received requests to repurchase 9.3% of shares outstanding in its HPS Corporate Lending Fund (HLEND) – “exceeding the 5% framework for the first time since inception.” Blackstone announced that redemption requests totalled 7.9% of its Blackstone Private Credit Fund (BCRED). And this week, Cliffwater revealed that investors have asked to pull 14% out of its flagship private credit interval fund.1
Managers are responding to the wave of redemption requests in a variety of ways. Blackstone upsized its offer to 7% and joined with its employees to chip in the rest, declaring proudly that it is “fulfilling all repurchase requests this quarter, as we have done every quarter since inception.” BlackRock, by contrast, stuck to its guns, imposing a 5% limit while thanking investors “for the trust you place in us as your investment fiduciary.” Its decision was applauded by John Zito, co-President of peer firm Apollo Asset Management, who said that these “products are designed to protect redeeming and remaining investors by allowing vehicle liquidity to match natural asset liquidity.” Blue Owl tried a different approach. It sold a portfolio of loans in its Blue Owl Capital Corp II vehicle to fund a one-off 30% payout, telling investors to hold tight for the rest. Rather than stick with its quarterly tendering schedule, management will return capital as and when it can.
Over the next month, other funds will reveal the scale of their outflows. Goldman Sachs estimates that the industry could see $45 billion to $70 billion in net outflows over the next two years. Yet the fear of gates going up before investors can exit may itself accelerate the outflows. Managers reference record redemption requests, but it’s not clear how robustly they have modelled these at the industry level.
For some, recent events have the hallmarks of the Global Financial Crisis. On X/Twitter this week, Jeffrey Gundlach, founder of DoubleLine Capital, posted: “A Private Credit Fund of Funds in 2026 seems to rather closely resemble a CDO-squared in early 2007.”
Many of the echoes are certainly there. In June 2007, Bear Stearns suffered debilitating issues in two of its managed hedge funds; a few months later, Goldman Sachs had to stabilise one of its own. Questions around marks and hidden leverage circulate. Whatever parallels you want to draw, the important question is whether the current issues are systemic. To explore the question with me, read on.2