However the whole private credit redemption control saga plays out, investors have perhaps received a timely warning that the asset class carries risks. Those advising HNW, affluent and retail clients should take note, as should policymakers widening access to these areas.

The ascent of private credit funds in the aftermath of the 2008 financial crash, fuelled by ultra-low interest rates and new bank capital rules, appears to have hit a barrier – at least for the time being. 

Reports that investors are trying to hit the exits, requiring firms to limit redemptions, are eerily familiar of earlier episodes, such as at hedge fund or real estate funds when markets were hit by worries about the underlying economy, such as in 2008/9 and the Brexit vote of 2016, respectively.

The question is whether this shows that there’s a fundamental problem with such “shadow banking” or that this is a period of worry caused by bad loans and problems in specific sectors that can be contained. (It can be a argued that non-bank lending is not particularly "shadowy" at all and that for too long, access to credit has been dominated by banks, often in ways that reduce diversity in funding and weaken growth.)

Failings
There have been problems. For example, UK mortgage lender Market Financial Solutions Ltd has collapsed. The firm had borrowed (source: Bloomberg, 12 March) more than £2 billion ($2.7 billion) from backers including Barclays and Apollo Global Management Inc’s Atlas SP Partners unit. It collapsed on 25 February. On 28 September last year, First Brands Group filed for bankruptcy, worrying private lending and capital market participants. US subprime auto lender Tricolor defaulted in September 2025, causing problems for asset-backed securities (ABS) investors and some banks. 

Jamie Dimon, the outspoken JP Morgan CEO, has famously dubbed private credit funds as “cockroaches.” That does not appear to have led him to shun the sector, however. America’s largest bank is reportedly restricting some lending to private credit funds after marking down the value of certain loans in their portfolios. Banks lend to private credit funds, using the funds’ loans as security. 

And with more retail/mass-affluent investors now in the space – encouraged by public policy in the US, the European Union and UK – the problems affecting the sector will drive debate on the extent to which non-listed vehicles with certain redemption rules are suitable for “mainstream” investors. Back in June last year, our US correspondent heard sceptical views about the private credit trend. (There has also been a move into the so-called "evergreen," aka perpetual, field of funds. We examined potential risks only a few days ago. See here and here.)

Some background on latest developments: Cliffwater, a firm based in California, and Morgan Stanley, have imposed caps on redemption requests on two semi-liquid, retail-oriented private credit funds. Reports said that in Q1 2026, Cliffwater was asked to tender about 14 per cent of its shares in its $33 billion flagship private credit fund, prompting it to impose a 7 per cent cap on shares being tended. Morgan Stanley has been asked for tenders on 10.9 per cent of shares outstanding, as at 31 December – it limited pullouts at 5 per cent of shares on a pro-rata basis. 

Media reports said the sector is going through one of the largest redemption waves in the fast-growing $1.8 trillion private credit market. A few days ago – as WealthBriefing reported here – media reports said that the US firm Blue Owl was limiting redemptions from its Capital Corp II (OBDC II) fund. The organisation pushed back against such reports, saying it had accelerated returns of capital. 

Several Wall Street big hitters such as Blackstone operate in private credit, part of a broader push into private markets and “alternatives” generally – a term covering private equity, venture capital, private credit, forms of property and infrastructure. Since the 2008 financial crash, and subsequent decade-plus of ultra-low interest rates (often negative when accounting for inflation), interest has surged. To an extent, this is a case of "water finding its own level" – if regulators try to limit lending and risk-taking in one sector, then money, like water, will flow somewhere else, and maybe not in such open view. The Law Of Unintended Consequences.

With more money – including retail – also entering the space, the question is whether this increased demand will push down yields and how vulnerable the sector will be if official and market borrowing costs rise. There's been a "vibe shift" towards encouraging private clients to get into the act – and their advisors need to be aware of the downsides. Firms such as Blackstone, KKR and Carlyle, for example, have increasingly targeted private clients in part because existing clients such as pension funds have become fully allocated, and are waiting to achieve exits on their investments. Also, as more money flows into the private credit/markets space, it is happening as global economic news takes a darker turn because of the Iran war. Indicators of market stress, such as swap spreads, are flashing more red.

Red flags
It is not as if there haven't been warnings before, often from the most senior sources. For example, in April 2024, the International Monetary Fund said that while not necessary a systemic risk to the financial system, private credit raised certain concerns. “Authorities should consider a more active supervisory and regulatory approach to private credit, focusing on monitoring and risk management, leverage, interconnectedness, and concentration of exposures,” the IMF said. 

For years, wealth managers, family offices and private banks have been regaled about the supposed long-term superior returns from private markets, and for those with sufficiently deep pockets and the patience to think in terms of decades – such as family offices – the allocation to non-listed markets makes sense. (The “Yale Model” school of thought that says investors often over-pay for liquidity still holds considerable sway.) But clearly latest events are a reminder, perhaps timely, of the downsides.

It may be – as the WSJ and others noted – that senior figures in the private-credit world say there is overreaction to a few dud investments. Most corporate loans in which the funds invest appear, so it is said, to be performing well, unlike commercial mortgages in real-estate funds, which were hit by the post-pandemic spike to interest rates. In a 23 February note, Cliffwater CEO Stephen L Nesbitt said: “Private debt returned an estimated 2.22 per cent in Q4 2025 and 9.33 per cent in calendar year 2025. Press concerns surrounding defaults have yet to materialse. Estimated realised losses for Q4 are 0.13 per cent (13 basis points) and 0.70 per cent for the calendar year, well-below the 1.01 per cent annual (0.25 per cent quarterly) historical loss rate for private debt. Cliffwater research shows that credit losses are highly correlated with recessions, unlike economic conditions found today.”

“Early year-end reporting shows the health of underlying loans has been largely consistent with that of prior quarters, with only a mild uptick in certain credit health metrics,” Nesbitt wrote. “Private debt should play a role in a diversified portfolio given its attractive and consistent pattern of returns. Those returns have shown to fluctuate over time within a modest band. Cliffwater expects this private debt trademark to continue despite the inflated hurdles and challenges triggering concerns around the asset class.”

There is also debate on how much of what's going on is specific to certain sectors or more general. Tom Stack, managing director, credit research at Cambridge Associates, wrote on 11 November 2025 that the Tricolor and First Brands stories did not suggest that there was a systemic problem in the asset class.

"Both cases are idiosyncratic, driven by fraud and unique business practices rather than broad market weakness. Importantly, the impact was felt across both private and traditional credit markets, not just private credit. Fundamentals in private credit remain strong, with no signs of widespread credit deterioration. We continue to see private credit as a compelling source of return and diversification, and we expect commitments to high-quality private credit managers over the next year will continue to outperform comparable public credit opportunities," Stack wrote.

However this all shakes out, the wealth management sector, and indeed those down the wealth spectrum, have been reminded if a market is called “shadow” something, however glib that term might be, it carries a warning to proceed with due care and attention.