Private Credit Stress Test: What Breaks And What Holds
Private credit faces mounting stress from liquidity mismatches, fraud concerns, and macro pressures, even as bullish sentiment persists.
Private credit has avoided a “Lehman moment,” but pressure is building across liquidity, leverage, and transparency—raising doubts about how long the asset class can withstand its visible cracks.
Some investors have had enough. Consider the surge in redemption requests at firms like Morgan Stanley, Apollo Global Management, BlackRock and Blue Owl Capital. Each firm capped withdrawals at 5% per fund, and saw their stock prices plummet. At a glance, this exodus of money signals that an endgame could be near.
Larry Fink, the billionaire CEO of BlackRock, attempted to quell fears on an earnings call last week, insisting that institutional demand is accelerating. Meanwhile, financial regulators are raising red flags. Financial Stability Board Chair Andrew Bailey warned in an April letter to the G20 that geopolitical tensions, such as the ongoing conflict in the Middle East, could reduce asset quality and further strain private credit funds.
The dichotomy has finance pros scratching their heads, wondering what to make of a key part of the $15 trillion private markets ecosystem. If data from U.K.-based data company Preqin is correct, private credit could exceed $30 trillion by 2030. Even with solid fundamentals, private credit’s mounting liquidity concerns, leverage risks and macroeconomic pressures are testing its resilience.
The Liquidity Mismatch Problem
“This is not a single-firm story,” Former Nasdaq Vice Chairman David Weild told Global Finance. “It is sector-wide.”
Fink may be right; private credit offers compelling risk-adjusted returns, Weild, now an advisor at private-credit platform KoreInside, said. “However, if the claim is that you can deliver those returns inside a vehicle that promises quarterly or monthly liquidity to retail investors, one will inevitably discover that in times of market stress, the demand for liquidity will exceed the short-term supply of liquidity.”
Recent turmoil in private credit has raised questions about whether 2026 could bring a broader retrenchment. The industry faces growing scrutiny over fraud risks, regulatory pressure, and the impact of AI-driven disruption. Transparency concerns are also weighing on investor confidence, highlighted by automotive parts supplier First Brands Group, which has filed for bankruptcy protection and has allegedly concealed billions of dollars in debt from lenders, including exposure in private credit accounts held by BlackRock.
Software lending has come under particular focus, given its large share of private credit portfolios. AI-driven disruption is now raising concerns about future credit losses.
“The combination of AI-driven disruption in enterprise software valuations, tighter lending standards, and redemption pressure on the very BDC vehicles that would normally provide refinancing capacity creates a compounding problem,” Weild said. “Some private credit funds are already turning away software companies outright, given the impact of AI on that industry.”
What Needs To Change
Private credit bulls need to rethink “real structural challenges,” such as how capital is raised, how vehicles are structured, and what level of education advisors need going forward, said Prath Reddy, President of Percent Securities. A lack of accessible data, limited liquidity, and insufficient options for tailored exposure also give him pause.
“We are certainly in a stress scenario now,” said Reddy. “Leaving [these issues] unaddressed leaves a tremendous amount of capital on the table from wealth management channels.”
Private credit might be under the microscope, but some private equity players continue to cash in. Ares Management raised $9.8 billion for an opportunistic credit strategy, Adams Street Partners closed its $7.5 billion Private Credit III fund, and Carlyle Group raised $1.5 billion in initial funding for a new asset-backed finance vehicle.
“For private credit to keep working at this scale, liquidity structures, leverage levels, and repayment timelines all need to remain aligned as exits take longer and refinancing becomes more selective,” said Jun Li, EY’s Global and Americas Wealth & Asset Management Leader. Stress arises when those assumptions break down simultaneously.
“A true stress scenario would likely involve refinancing risk colliding with slower exits and shifting liquidity expectations, particularly if capital is locked up longer than anticipated and operating models are not built to absorb that pressure,” Li added.
Banks Reprice The Relationship
Big banks—both competitors and partners to nonbank lenders—are trying to project calm.
JPMorgan Chase CEO Jamie Dimon, for example, downplayed concerns about the private credit sector on an April 14, 2026, earnings call. That’s in stark contrast to his take last year, when Dimon referred to the bankruptcy proceedings of First Brands and TriColor—two companies that relied on private credit—as “cockroaches.“
JPMorgan Chase is now tightening certain relationships with private credit funds to limit exposure amid volatility. Goldman Sachs and Barclays are taking a similar risk-management stance.
“On one side, fundamentals still look supportive with institutional capital stepping in as banks pull back,” Li said. On the other hand, pressures are building around liquidity, leverage, and refinancing, which naturally raises systemic questions.
As Li put it: “This doesn’t look like an endgame, but it does look like a decisive moment.”
What’s Next
From here, Li is predicting that private credit will separate into managers who can operate through longer cycles, tighter liquidity, and greater scrutiny, and those who cannot.
“Some strategies may struggle, but the broader market is still evolving rather than unwinding,” Li added. “The outcome will depend less on a single shock and more on how well firms adapt to a more demanding environment.”
Other observers are more bullish. Attorney Derek Ladgenski, a partner specializing in private credit at Katten Muchin Rosenman, argued that experienced market participants will ultimately work through the sector’s challenges.
“The Avengers are closer to an endgame than private credit,” said Ladgenski. “The tombstone for private credit has been written many times before.”
Ladgenski said that while cyclical pressures exist across all asset classes, the deeper challenge in private credit is liquidity mismatch—an outcome, in part, of significant investor inflows chasing its strong historical track record and forward-looking returns.
Still, any “stickiness” will ultimately strengthen the sector, he added. “And the current sound bites and headlines regarding any death knells will be forgotten soon enough.”
