Key Takeaways
- • Business development companies (BDCs), a key retail entry point into private credit, now trade at about 78 cents on the dollar of reported assets, down from 85 cents at the start of the year and roughly par in early 2025, according to Morningstar data cited by Reuters.
- • FS KKR Capital Corp trades at 51 cents per dollar of assets, Prospect Capital at 44 cents, and Blue Owl Technology Finance at 68 cents, per Raymond James data reported by Reuters; Ares Management's US$31bn BDC trades at 94 cents.
- • Cliffwater's US$33bn flagship fund received redemption requests for 14 percent of shares this quarter; it will pay out about half and defer the rest, after raising its redemption cap from 5 to 7 percent, per the Wall Street Journal.
- • JPMorgan marked down some loans to private credit funds, mostly tied to software companies, reducing borrowing capacity for clients, a move the FT described as a "shot across private credit's bow" that did not trigger margin calls.
- • US bank lending to non-depository financial institutions reached US$1.2tn by mid-last year, nearly triple a decade earlier, according to Moody's Ratings cited by the Wall Street Journal.
Summary
Investors are seeking to exit software-heavy private credit vehicles just as banks that fuelled the sector's growth begin to tighten leverage. Private credit, loans from non-bank lenders to often riskier corporate borrowers, has grown to roughly a US$2tn market. Reuters, citing Morningstar, reported that BDCs now trade at about 78 cents on the dollar of reported assets, against 85 cents at the start of the year and roughly par in early 2025. Analysts read the discounts as a sign that investors no longer fully trust stated asset values.
The pressure is most acute at some of the largest vehicles. Per Raymond James data reported by Reuters, FS KKR Capital Corp trades at 51 cents per dollar of assets, Blue Owl Technology Finance Corp at 68 cents and Prospect Capital at 44 cents. Carlyle's Secured Lending fund trades at 68 cents and Blackstone's Secured Lending Fund at 88 cents, while Ares Management's US$31bn fund, the largest BDC, trades at 94 cents. Morningstar's Jack Shannon told Reuters that investors appear to believe the sector's "best days are behind it", after rapid growth "forced firms to compete" by offering higher returns or loosening protections.
Redemption pressure is also building in retail-oriented products. The Wall Street Journal reported that Cliffwater told clients investors in its flagship US$33bn fund requested to redeem 14 percent of their money this quarter. The fund will pay out about half, with the remainder deferred to at least the next quarter. Cliffwater built the product largely for individuals, using its private-credit indexes to sell exposure to corporate loan portfolios and other private-credit funds. A person close to the firm told the Journal that Cliffwater debated keeping its 5 percent limit before raising it to 7 percent, partly to avoid looking less generous than competitors. Cliffwater said the fund returned 0.74 percent year to date after fees and nearly 9 percent last year with minimal losses, and attributed the higher redemptions to "unfounded media hysteria". Blue Owl recently allowed withdrawals of 15 percent from a technology-focused private credit fund that normally limits redemptions to 5 percent, and Blackstone's US$82bn credit fund recorded net withdrawals for the first time and allowed redemptions of about 8 percent. Morgan Stanley limited redemptions at one private credit fund after investors sought to pull almost 11 percent of outstanding shares. Blackstone president Jon Gray told Reuters that large institutional investors such as pension funds continue to commit capital. Hedge-fund manager David Rosen of Rubric Capital Management, in a letter reviewed by the Journal, warned of "bank run" risk and called Cliffwater a possible "canary in the coal mine".
Bank lenders are also reassessing exposure. JPMorgan reduced the value of some loans to private credit funds after reviewing market turmoil around software companies, where artificial intelligence raises questions about business models. CNBC reported that the bank's trading division marked down loans, mostly to software firms, used as collateral in private-credit clients' financing, cutting how much those clients can borrow and in some cases potentially forcing them to post more collateral. Reuters said JPMorgan's credit agreements allow it to re-mark valuations when markets dislocate, and that the bank reviewed its portfolio "name by name and then sector by sector". The Financial Times reported the haircuts did not trigger margin calls but aimed to reduce available credit pre-emptively, describing the move as a "shot across private credit's bow". The Journal, citing Moody's Ratings, reported that US bank loans to non-depository financial institutions, including private-credit firms, reached US$1.2tn by mid-last year, nearly triple a decade earlier. Some bankers expect to become more conservative, though they do not yet see a systemic problem.
Market stress is visible beyond fund shares. Higher-yielding CLO bonds held by private-credit funds fell 4.1 percent in February, after gains of 1 percent in both January and December, as funds sold holdings to meet redemptions. The FT reported that the chair of Partners Group warned private credit default rates could double in coming years, with lenders exposed to the full downside of AI-driven disruption and limited upside. Per Eversheds Sutherland, cited by Reuters, around 50 traded BDCs hold more than US$150bn, while over 100 non-traded BDCs hold another US$270bn.
The pressure is most acute at some of the largest vehicles. Per Raymond James data reported by Reuters, FS KKR Capital Corp trades at 51 cents per dollar of assets, Blue Owl Technology Finance Corp at 68 cents and Prospect Capital at 44 cents. Carlyle's Secured Lending fund trades at 68 cents and Blackstone's Secured Lending Fund at 88 cents, while Ares Management's US$31bn fund, the largest BDC, trades at 94 cents. Morningstar's Jack Shannon told Reuters that investors appear to believe the sector's "best days are behind it", after rapid growth "forced firms to compete" by offering higher returns or loosening protections.
Redemption pressure is also building in retail-oriented products. The Wall Street Journal reported that Cliffwater told clients investors in its flagship US$33bn fund requested to redeem 14 percent of their money this quarter. The fund will pay out about half, with the remainder deferred to at least the next quarter. Cliffwater built the product largely for individuals, using its private-credit indexes to sell exposure to corporate loan portfolios and other private-credit funds. A person close to the firm told the Journal that Cliffwater debated keeping its 5 percent limit before raising it to 7 percent, partly to avoid looking less generous than competitors. Cliffwater said the fund returned 0.74 percent year to date after fees and nearly 9 percent last year with minimal losses, and attributed the higher redemptions to "unfounded media hysteria". Blue Owl recently allowed withdrawals of 15 percent from a technology-focused private credit fund that normally limits redemptions to 5 percent, and Blackstone's US$82bn credit fund recorded net withdrawals for the first time and allowed redemptions of about 8 percent. Morgan Stanley limited redemptions at one private credit fund after investors sought to pull almost 11 percent of outstanding shares. Blackstone president Jon Gray told Reuters that large institutional investors such as pension funds continue to commit capital. Hedge-fund manager David Rosen of Rubric Capital Management, in a letter reviewed by the Journal, warned of "bank run" risk and called Cliffwater a possible "canary in the coal mine".
Bank lenders are also reassessing exposure. JPMorgan reduced the value of some loans to private credit funds after reviewing market turmoil around software companies, where artificial intelligence raises questions about business models. CNBC reported that the bank's trading division marked down loans, mostly to software firms, used as collateral in private-credit clients' financing, cutting how much those clients can borrow and in some cases potentially forcing them to post more collateral. Reuters said JPMorgan's credit agreements allow it to re-mark valuations when markets dislocate, and that the bank reviewed its portfolio "name by name and then sector by sector". The Financial Times reported the haircuts did not trigger margin calls but aimed to reduce available credit pre-emptively, describing the move as a "shot across private credit's bow". The Journal, citing Moody's Ratings, reported that US bank loans to non-depository financial institutions, including private-credit firms, reached US$1.2tn by mid-last year, nearly triple a decade earlier. Some bankers expect to become more conservative, though they do not yet see a systemic problem.
Market stress is visible beyond fund shares. Higher-yielding CLO bonds held by private-credit funds fell 4.1 percent in February, after gains of 1 percent in both January and December, as funds sold holdings to meet redemptions. The FT reported that the chair of Partners Group warned private credit default rates could double in coming years, with lenders exposed to the full downside of AI-driven disruption and limited upside. Per Eversheds Sutherland, cited by Reuters, around 50 traded BDCs hold more than US$150bn, while over 100 non-traded BDCs hold another US$270bn.
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