Key Takeaways
- • Blue Owl Capital reported a historic level of redemption requests for its business development company (BDC) this week and limited withdrawals, a step the fund is permitted to take.
- • Ares Management, Apollo Global, Blackstone, KKR, and the private credit arms of Morgan Stanley, J.P. Morgan, and Goldman Sachs have also capped redemptions, which most describe as industry recalibration rather than crisis.
- • Publicly listed BDC shares have fallen sharply in 2026, trading at roughly a 20% discount to net asset value, while U.S. software services shares have dropped about 20% this year.
- • Oxford Economics estimates 25%-35% of private credit portfolios are exposed to AI disruption risk, and private credit accounts for around 35% of total U.S. insurer investments.
- • Analysts warn that contagion risk runs through insurers rather than banks, with exposure falling on pension funds and retail annuity holders, though timing of any stress remains uncertain.
Summary
Private credit stress has intensified in 2026, with redemption pressure on business development companies (BDCs) accelerating on concerns about competition, falling returns, and fears that artificial intelligence will disrupt software businesses they finance. Blue Owl Capital was the latest BDC to report historic redemption requests this week and to limit withdrawals, which it is permitted to do. According to the report, Ares Management, Apollo Global, Blackstone, KKR, and the private credit arms of Morgan Stanley, J.P. Morgan, and Goldman Sachs have also capped redemptions. Most of these managers have characterized the outflows as a period of recalibration rather than a crisis.
Signs of strain extend beyond redemptions. BDCs are facing higher rates on their bank borrowings even as the historically high double-digit returns on private lending shrink. Publicly listed BDC shares have fallen sharply this year, trading at roughly a 20% discount to net asset value, and U.S. software services shares, the sector most closely linked to private credit, have fallen by a fifth. Data on exposures, valuations, and losses remains limited because the underlying deals are private. BDCs collectively hold more than half a trillion dollars in private assets, within an industry the Alternative Investment Management Association estimates at $3.5 trillion.
Views on systemic risk diverge. John Giordano, managing director of Seaport Global Holdings, said credit cycles and markdowns are expected and that risks are not systemic, citing low BDC leverage, senior debt positions, equity involvement in portfolio companies, and a well-capitalized banking sector. Rory Dowie of Marlborough warned of a possible self-fulfilling dynamic between public and private markets, and his firm has reduced exposure to some asset managers and exited Partners Group, whose chair Steffen Meister said default rates could double over the next few years. Javier Corominas of Oxford Economics said the market is in the early stages of a rolling private credit crisis, given estimates that 25%-35% of portfolios face AI disruption risk.
The larger concern, according to Corominas, is insurers. Private credit accounts for around 35% of total U.S. insurer investments and close to a quarter of UK insurer assets, and U.S. life and annuity insurers' holdings have more than doubled over the past decade. Insurers affiliated with private equity firms hold an estimated $1 trillion in assets tied to those relationships. Corominas argued that losses could erode insurer solvency and produce slow erosion of retirement security for U.S. pension funds and annuity holders rather than bank-run dynamics. Alberto Gallo of Andromeda Capital Management said private credit differs from the 2008 subprime crisis in its contagion channels, noting that insurance holdings lack mark-to-market valuation, and that the full extent of problems is still being discovered.
Signs of strain extend beyond redemptions. BDCs are facing higher rates on their bank borrowings even as the historically high double-digit returns on private lending shrink. Publicly listed BDC shares have fallen sharply this year, trading at roughly a 20% discount to net asset value, and U.S. software services shares, the sector most closely linked to private credit, have fallen by a fifth. Data on exposures, valuations, and losses remains limited because the underlying deals are private. BDCs collectively hold more than half a trillion dollars in private assets, within an industry the Alternative Investment Management Association estimates at $3.5 trillion.
Views on systemic risk diverge. John Giordano, managing director of Seaport Global Holdings, said credit cycles and markdowns are expected and that risks are not systemic, citing low BDC leverage, senior debt positions, equity involvement in portfolio companies, and a well-capitalized banking sector. Rory Dowie of Marlborough warned of a possible self-fulfilling dynamic between public and private markets, and his firm has reduced exposure to some asset managers and exited Partners Group, whose chair Steffen Meister said default rates could double over the next few years. Javier Corominas of Oxford Economics said the market is in the early stages of a rolling private credit crisis, given estimates that 25%-35% of portfolios face AI disruption risk.
The larger concern, according to Corominas, is insurers. Private credit accounts for around 35% of total U.S. insurer investments and close to a quarter of UK insurer assets, and U.S. life and annuity insurers' holdings have more than doubled over the past decade. Insurers affiliated with private equity firms hold an estimated $1 trillion in assets tied to those relationships. Corominas argued that losses could erode insurer solvency and produce slow erosion of retirement security for U.S. pension funds and annuity holders rather than bank-run dynamics. Alberto Gallo of Andromeda Capital Management said private credit differs from the 2008 subprime crisis in its contagion channels, noting that insurance holdings lack mark-to-market valuation, and that the full extent of problems is still being discovered.
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