Private Credit: The Exit Is Smaller Than the Entrance
Investors put $1.8T into private credit funds over the past decade on the promise of higher yields and quarterly access to their money. This quarter they are discovering what quarterly access actually means when everyone wants it at the same time.
Apollo ($APO) filed with the SEC on June 22nd confirming redemption requests hit 16.8% of net asset value in Q2 2026, ~$2.4B of the fund's $14.3B total. The fund caps withdrawals at 5% of shares outstanding, ~$0.7B in gross outflows against $2.4B in redemption requests. The remaining capital stays in the fund and rejoins the queue for next quarter.
Apollo is not an isolated case. Blackstone's ($BX) $79B private credit fund received 10% redemption requests in Q2. Cliffwater hit 17%, HPS, which was acquired by BlackRock for $12B in Jan 2026, hit ~13%. Switzerland's Partners Group has also warned it may curb redemptions across several of its private asset vehicles following a surge in exit requests. Blue Owl's ($OWL) OTIC fund saw 40.7% redemption requests, nearly half the fund trying to exit simultaneously. Across the largest retail private credit funds, investors requested close to $14B in withdrawals during Q2, only around half of those requests were met.
This is not a financial crisis. The majority of the underlying loan portfolios are not obviously impaired; no forced liquidation cycle has started. The system is functioning exactly as it was designed to function, and that is the problem.
What Private Credit Is
Private credit funds lend money directly to companies; typically mid-sized businesses, leveraged buyouts, and increasingly technology and software companies, rather than going through banks or public bond markets. The loans are privately negotiated, held to maturity, and not traded on any exchange.
Banks pulled back from this type of lending after the 2008 financial crisis when new capital requirements made risky corporate loans expensive to hold, so private credit funds stepped in. Pension funds, endowments, and insurance companies poured capital in, attracted by yields of 11-13% at a time when public bonds yielded almost nothing.
The market grew from under $10B in AuM in the early 2000s to over $1.8T today. The number of private credit funds grew from less than 30 to nearly 1,000. Then the funds opened the product to retail investors.
To attract retail capital, the funds offered quarterly redemption windows. Investors could request their money back every three months. It appeared like the liquidity of a mutual fund with the returns of private lending.
It was never going to work when everyone wanted out at the same time.
The Exit
When a fund caps redemptions at 5% per quarter but 17% of shareholders want to leave, the fund fulfils 5% of shares outstanding on a pro rata basis. Every investor who requested a redemption receives the same fraction of what they asked for, not a first-come-first-served payout. Apollo confirmed each redeeming investor will receive ~45% of their requested funds this quarter. At Cliffwater, where requests hit 17%, investors received roughly 29 cents on every dollar requested.
At 17% request rates against a 5% cap, an investor who wants a full exit receives their capital back over ~4 quarters. Assuming no new redemption requests arrive from other investors. In practice, as the Apollo data shows, new requests keep coming each quarter.
Cliffwater cut its withdrawal cap from 7% to 5% in Q2 specifically because requests exceeded the previous limit. Blackstone honoured all Q1 requests by temporarily raising its cap to 7%, then reverted to 5% when Q2 requests hit 10%. The funds that were most generous in Q1 are now the most constrained in Q2.
Sunaina Sinha Haldea, Global Head of Private Capital Advisory at Raymond James, told CNBC: "We're discovering in real time that you can't offer near-daily liquidity on genuinely illiquid assets without eventually testing the plumbing, and 2026 is the year those structures get rewritten."
What's Driving the Acceleration
Apollo received ~2.5% redemption requests in Q3 2025, by Q2 2026 that figure hit 16.8%. The acceleration has not been a gradual drift upwards; it jumped in just three quarters.
Three things are happening simultaneously.
The media feedback loop. Bank of America confirmed that private credit sales fell over 50% MoM in April 2026, driven partly by "intense media coverage." Investors read about redemption gates being imposed at other funds and request redemptions themselves.
The software loan concentration. Public BDCs (Business Development Companies, the publicly traded version of private credit funds) have ~20.8% of their portfolios in software and technology companies, per JPMorgan's February 2026 analysis. Private credit was the primary source of financing for mid-market software businesses during the zero-rate era. Those same businesses are now under pressure from AI disrupting their models. Apollo's own shareholder letter cited "the impact of technological innovation on different business models" as a specific driver of heightened scrutiny. The SaaSpocalypse narrative that has sold off public software stocks is now working its way through private credit portfolios, but nobody knows what they are actually worth until someone tries to sell them.
Additionally, the 20.8% exposure figure is likely understated. Bloomberg found at least 250 loans to software firms that were categorised as other industries by one or more BDCs.
Morgan Stanley projects direct-lending defaults could surge to 8% in 2026, more than 3x the historical average of 2-2.5% and significantly above the headline rate managers currently report.
A record $25B of speculative-rated software loans were already trading below 80 cents on the dollar as of January 2026, per Morningstar LSTA data. Clearlake Capital alone has 11 companies with underperforming debt, including Quest Software, whose lowest-graded debt trades at approximately 25 cents on the dollar. TA Associates has 10 and KKR has 5.
The structural discovery. Investors are realising simultaneously that the liquidity they thought they had was conditional on nobody else wanting it at the same time. When that realisation spreads, the queue grows faster than the cap can accommodate, and the queue growing makes more investors want to join it. This is structurally identical to a bank run, but the difference is the 5% quarterly gate slows the run to a walk.
The Marked-to-Model Problem
Private credit assets are marked to model rather than marked to market. The fund manager determines what the loans are worth using internal models rather than live market prices.
This is not unusual for illiquid assets, but it creates a specific problem when stress arrives. In public markets, a bond's price falls as credit quality deteriorates, giving investors a continuous signal. In private credit, the valuations stay relatively stable until default, at which point the loss crystallises immediately rather than gradually.
The Financial Stability Board (FSB), the international body that monitors global financial system risk on behalf of G20 regulators, published a report in May 2026. They warned that "valuation opacity and reliance on private credit ratings can amplify strains in stress." They also noted that private credit borrowers "typically have lower credit quality and higher leverage than borrowers in comparable public markets" and that the sector "has not been tested during a severe economic downturn."
Moody's downgraded its outlook on Blue Owl's OCIC fund to negative in April 2026, not due to observable loan impairment, but because of the redemption pressure itself.
The same opacity that makes private credit valuations unreliable for retail investors is now being used as collateral for personal loans to the executives running the funds. Private banks including UBS, Citi, and Deutsche Bank are lending private equity executives against their unrealised carried interest (future profits based on the fund's current marked-to-model valuations). Hold periods have stretched to 7 years on average from 5 to 6 historically, meaning executives are waiting longer for carry payouts and borrowing against marks in the interim. If those marks accurately reflect the underlying portfolio, the loans are reasonable. If they don't, the banks holding the non-recourse carry loans are the next ones in line for the exit door.
Where the Money Goes
Investors put money into private credit funds. Those funds lend to mid-market businesses like software companies, healthcare providers, industrial businesses, and leveraged buyouts. The loans pay 11-13% because the borrowers cannot access cheaper bank or public market financing.
When private credit contracts (funds restrict redemptions, reduce new lending, and tighten standards under withdrawal pressure), that capital does not disappear, it flows back toward public markets.
Bank of America confirmed that investment-grade new issuance hit $115B in a single week of April 2026, just below the all-time record, as capital rotated out of private credit into more liquid, higher-quality public bonds.
Private credit itself is already pulling back. New loan issuance by private credit lenders fell 40% to $44.7B in the three months ending May 2026, down from $74.5B in Q1.
The mid-market companies that relied on private credit for financing face a different problem. When their existing loans mature in 2028 and 2029, they will refinance in a market with less private credit capital available, at higher spreads, into a higher-for-longer rate environment. The Fed dot plots from June 17th now project rates at 3.8% through 2027. The companies that borrowed at 11-13% floating rates in 2021 and 2022 on the assumption that rates would fall are now running out of time.
AI companies appear alongside mid-market software businesses in private credit portfolios. The major hyperscalers (Amazon, Microsoft, Meta) are not using private credit. They issue investment-grade bonds at relatively cheap rates because they have strong cash flows and existing ratings. SpaceX itself is issuing a $20B investment-grade bond offering to refinance a bridge loan.
While retail investors attempt to exit the fund, Apollo has deployed $10.5B across three bespoke transactions in the past six months. Private credit enters the picture for structured, bespoke transactions that public bond markets can't accommodate quickly. Apollo's $10.5B includes GPU lease financing for Valor (a special purpose vehicle leasing hardware to xAI and SpaceX's AI operations). This is asset-backed structured financing secured against the GPUs themselves, distinct from SpaceX's $20B corporate bond offering which is unsecured debt backed by SpaceX's general creditworthiness. Both are happening simultaneously, SpaceX the company borrowing in public investment grade markets while its AI infrastructure is financed through private credit special purpose vehicles.
The Bank of International Settlements flagged that private credit loans to AI companies stood at $200B at end of 2025 and could grow to $600B by 2030, describing the disconnect between AI debt pricing and AI equity valuations as a "schism" that could produce "sharp corrections in both equity and debt markets."
Who This Affects
Retail investors in private credit funds. These are the most directly exposed; the 5% quarterly cap means a full exit takes years at current request rates. Investors who believed they had quarterly liquidity now understand they have pro rata quarterly liquidity, which is a materially different thing.
The alternative asset managers. Apollo ($APO), Blackstone ($BX), Ares ($ARES), KKR ($KKR), Blue Owl ($OWL), are the publicly traded companies most exposed to redemption acceleration, with Blue Owl stock already down ~40% YTD. BofA maintains Buy ratings on all five, forecasting Q2 as the redemption peak and retail inflows re-accelerating from the April trough. Deutsche Bank on the other hand, downgraded Blue Owl to Hold in March citing concerns over the retail credit flow environment.
Mid-market software and technology companies. These face the hardest path. Clearlake, TA Associates, and KKR alone have dozens of portfolio companies with underperforming debt already trading at distressed levels. These businesses have limited access to public bond markets, their private credit lenders are under withdrawal pressure, and their underlying models are the ones disrupted by the AI narrative. The refinancing wall in 2028-2029 is the deferred version of the current stress.
Traditional banks and public credit markets. These are the unintended beneficiaries. Capital rotating out of private credit into investment-grade public bonds flows directly into the institutions that issue and hold those bonds, like JPMorgan, Bank of America, Wells Fargo, and the broader regulated banking system. When private credit tightens its lending standards and restricts redemptions, mid-market corporate borrowers have fewer alternatives, and they come back to banks. Loan spreads widen, and lending conditions improve for regulated institutions that were squeezed out of this market by private credit in the first place.
My View
This is not 2008; private credit fund leverage averages 1-1.5x vs. 30-40x in pre-crisis products. The majority of underlying loans are not obviously impaired. Jamie Dimon called the $1.8T market "still small enough to pose no significant threat" on JPMorgan's Q1 2026 earnings call.
The structural problem is different and more durable than a credit crisis. Retail investors were sold quarterly liquidity on assets that have none. When enough discover this simultaneously, the queue grows regardless of whether the loans go bad. That process is already underway, and it is accelerating.
While retail investors queue for 5% quarterly exits, Apollo deploys $10.5B into GPU financing for SpaceX, this is happening from the same fund, in the same quarter.
Blue Owl's OCIC and OTIC funds haven't reported Q2 redemption data yet (expected late July), with BofA forecasting 28.5% and 52.9% respectively. If those numbers land at forecast, every fund that hasn't gated yet will be watching its own data and putting measures in place. iCapital estimates the current redemption cycle could extend across three to five quarters, the strain may not ease until late 2026 or early 2027.
As Sinha Haldea put it: "The wrap-it-for-retail-and-the-money-will-come phase in private credit markets is over."
Ticker Thoughts is independent analysis and not financial advice. No position held in any of the tickers mentioned at the time of publication. All open and closed positions are detailed on the positions page.