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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.”

Asset-light companies reshape private credit as lenders embrace intellectual property collateral, despite valuation challenges, legal risks, and AI-driven obsolescence concerns.

Asset-light companies are changing the world of private credit.

Unlike businesses that can rely on a heaping basket of assets like inventory, equipment, and real estate as collateral for private direct lending, these companies tend to use some of the most illiquid and difficult-to-value intellectual property (IP) as collateral.

“Capital is increasingly being formed around asset-based finance [ABF] strategies, but it’s still relatively early innings of where ABF will grow to within private credit markets,” says Brian Armstrong, managing director, US Direct Lending at Benefit Street Partners. “We believe ABF has the potential to be one of the fastest-growing asset classes over the next five years.”

Private-credit assets under management are expected to exceed $2 trillion this year, according to Moody’s 2026 Global Private Credit Outlook, published in January, which predicts they will approach $4 trillion by 2030. “Corporate lending still makes up most of the private credit lending, but momentum is shifting towards ABF,” the authors wrote. “While more difficult to track, ABF has the potential to eclipse the size of more traditional corporate lending.”

Pledging IP for collateral is not new; specialty retailer J. Crew used a mix of IP and other assets as security for more than $540 million payment-in-kind notes about a decade ago. The difficulty in using IP as collateral has been obtaining a fair valuation of assets such as data sets, proprietary software platforms, and patent and trademark portfolios.

Approaches to doing so include discounted cash flow analyses of the asset, benchmarking against comparable transactions, and estimating the asset’s replacement or reproduction costs. Often, businesses rely on an independent third-party valuation firm such as Alvarez & Marsal, Holihan Lokey, or Kroll.

One of the greatest concerns of ABF lenders, however, is the transfer of IP out of the basket of pledged assets.

“In many deals, covenants permit the borrowers to certify in their reasonable commercial discretion what the value of a given asset is,” says Jake Mincemoyer, partner and global co-head of Debt Finance at law firm A&O Shearman. “That’s what has gotten lenders very concerned, given a handful of transactions where borrowers have taken advantage of that and taken a crown-jewel asset out of the collateral package and levered it up elsewhere. So, it’s really been how do we make sure that if we’ve lent against it, we keep it?”

A prime example is the aftermath of J. Crew’s 2017 transfer of pledged IP to a new, unrestricted subsidiary, which was excluded from the parent company’s restrictive covenants and debt limitations and enabled it to raise further capital by pledging the same IP. What has become known as the “J. Crew Maneuver” has led to the inclusion of a “J. Crew Blocker” provision in debt covenants that prevents borrowers from transferring material assets into unrestricted subsidiaries.

That safeguard has not stopped borrowers from executing a variation on the theme, however. In February, Xerox moved IP assets pledged to existing debt to a joint venture in which it owns a 49% stake and raised an additional $450 million in funding. That minority stake prevents the joint venture from being considered a subsidiary under its debt documents, according to Ropes & Gray’s Distressed Debt Legal Insight, published in March.

“Borrowers have found more creative ways to operate within their credit documents, which has driven lenders to be more careful and thoughtful around tightening any unintended flexibility,” Benefit Street’s Armstrong says.

Transatlantic Divide

As in real estate, the ease of obtaining ABF while pledging IP as collateral depends on location. North America is approximately five years ahead of Europe due to EU law regarding governance of intellectual property and its use as collateral.

For example, under the European Parliament and Council’s Directive/24/EC, the original software developer, whether an employee or a consultant, owns the copyright to their code, unless their contract states otherwise. But proving the provenance of software code can be difficult, especially if it contains open-sourced content and third-party APIs.

“The market is not fully prepared yet to take on the whole financing of software, given the uncertainties around ownership,” says Steffen Schellschmidt, Munich-based partner and private credit specialist at the law firm Clifford Chance. “You have to do a comprehensive and costly due diligence on this.”

This has led most European private lenders to focus more on registered IP like patents and trademarks, whose ownership is easier to determine.

Secondly, and unlike in the US, EU law does not permit the inclusion of software IP in a floating charge, Schellschmidt notes: “So, once security is perfected under European law, assets can still be transferred, but their value is diminished as they remain subject to the existing pledge.” That creates a funding gap for businesses that fall between early-stage startups and large, successful companies in pharmaceuticals and other knowledge-based industries.

“That is why we don’t have a Silicon Valley,” Schellschmidt contends.

The EU is working to eliminate the funding gap. As part of its Strategic Plan 2030, the European Intellectual Property Office (EUIPO) and the European Commission brought together policymakers, IP offices, financial institutions, business leaders, and subject-matter experts in an IP-Backed Finance Steering Group and Technical Working Group on IP Valuation at the end of last year.

The Technical Working Group is mandated to develop an IP Finance Roadmap to “help businesses across Europe, especially startups, scaleups, and SMEs, access finance based on the value of their intellectual property.” The Steering Group will then review the roadmap and shape the EU’s strategic approach to IP valuation and financing, according to EUIPO statements.

AI Speeds IP Obsolescence

AI is affecting ABF, especially at businesses that plan to pledge enterprise software as collateral.

“Whether an asset is tangible or intangible, it will decay over time. Nothing holds all its value forever,” says Mark McMahon, managing director and global practice leader at Alvarez & Marsal Valuation Services. “If it’s a mine, it’s called depletion. If it’s a hard asset, it depreciates. If it’s software or another form of IP, it’s obsolescence.”

Computer code-writing AI engines, such as Anthropic’s Claude Sonnet and Microsoft’s GitHub Copilot, are only shortening the window to obsolescence for existing software stacks and lowering the value of software as collateral as market competition heats up due to lowered barriers to entry.

“The risk associated with a long-term software revenue stream might not necessarily be today what you estimated it to be even half a year ago,” McMahon notes.

However, AI should not be considered the death knell for software’s value as collateral, A&O Shearman’s Mincemoyer says.

“The same way that people figured out how to come up with all kinds of very creative and useful software programs that then they could package as SaaS businesses and really be constructive in the economy, I have to think that AI tools are going to allow even greater advancements and even greater new businesses and new tools as people are using them,” he says. “Does that mean the question is, Will the three or four people running the most powerful AI tools take over everything? There’s a risk of that. Do I think that actually will happen? Probably not.”

That said, the increased speed of software development should lead to more active management of collateral. As Benefit Street’s Armstrong advises: “If your IP collateral could conceivably be directly impacted by AI, you should certainly more frequently review and revalue that collateral to ensure your loan continues to be covered by the value.”

Despite these trends, ABF lenders’ appetite to accept various types of IP as collateral is growing. “Over the last five to 10 years, I have seen a large increase in financing being done where lenders are comfortable lending on nontangible assets,”  Mincemoyer says.