The world of private credit cannot escape the headlines in 2026.
Prominent figures, including J.P. Morgan CEO and Chair Jamie Dimon and Allianz Chief Economic Adviser Mohamed El-Erian, have warned of risks reminiscent of the 2008 financial crisis. Meanwhile, alternative asset managers continue to defend the asset class, keeping it squarely in the spotlight.
A combination of higher interest rates and multiple economic events have prevented many private credit borrowers from repaying their private loans. One early sign of trouble came in September 2025, when Tricolor Holdings, which offered auto financing to customers with limited credit histories, including undocumented borrowers, filed for bankruptcy. Auto parts supplier First Brands soon followed.
While those specific cases also involved fraudulent activity, they raised awareness of issues faced in private credit. Following sharp criticism from bank executives like Dimon, Blue Owl Capital Co-CEO Marc Lipschultz dismissed efforts to link auto company’s alleged fraud to private credit as “an odd kind of fear-mongering” during the CAIS Alternative Investment Summit in October 2025.
However, on February 18, Blue Owl restricted withdrawals from one of its private credit funds, rekindling anxiety about private credit.
Post-Blue Owl Troubles
Since Blue Owl’s decision to gate the Blue Owl Capital Corp II fund, Blackstone Inc. allowed investors to withdraw $3.7 billion from the Blackstone Private Credit Fund, representing 7.9% of its value—a record high. BlackRock’s HPS Corporate Lending Fund Marc 6 capped client redemptions at 5%, according to published reports.
Blackstone temporarily increased its 5% quarterly limit to 7% and covered the remaining 0.9% with internal capital to meet all requests. Other firms, such as Ares Management Corp., have also recently received a spike in requests to withdraw or redeem private credit fund investments.
The recent headlines also have helped drive a sharp drop in the stocks of several alternative investment firms. Over the past month, Blue Owl shares have dropped by 30%, KKR has fallen 24%, Blackstone is down 21%, Apollo has decreased by 22.9%, Carlyle Group has declined by 16.46%, and BlackRock is down by 9.58%. The S&P 500 Index was down less than 3% in the same one-month period.
The pressure has also intensified as the default rate among U.S. corporate borrowers of private credit climbed to a record 9.2% in 2025, according to Fitch Ratings.
Taken together, after investors poured billions into private credit over the past five years, the signs of trouble are growing. From company collapses to gated funds and rising redemption requests, private credit—which had promised higher investment returns than public credit during a period of low bond yields—has captured the spotlight across the investment industry. While debate continues over whether these challenges signal an impending crisis for the market estimated at $1.8 trillion, there is no question that private credit’s vulnerabilities are under the microscope, especially as alternative asset managers look to enter the defined contribution space.
Know Where the Exits Are
“When you’re in a movie theater and they tell you to be warned where the exits are in case there is an emergency, you start to want to be closer to the exit. That’s the kind of market we’re in right now,” says Neil Aggarwal, head of securitized products at Reams Asset Management. “It’s also dark in a theater, and you can’t see what’s happening. These are the problems in the market.”
Some institutional investors have already left the building.
Sam Masoudi, CIO of the Wyoming Retirement System, recently told CIO that the fund stopped investing in private credit about a year ago and will continue to let that portion of its portfolio run off. Currently, the fund allocates 4.3% to private debt, according to information from the pension fund.
Aggarwal says he has not entirely lost his appetite for private credit, but he has a heightened sense of concern. He says investors should have a high bar in understanding the valuation assumptions if they choose to invest in private credit.
Aggarwal says he is far more interested in investing in new funds and fresh capital than in existing funds with legacy positions, which he believes carry greater risk. He adds that the stock performance of alternative asset managers will serve as an important indicator of the gravity of the concerns about the private credit sector.
“We are watching Blue Owl’s stock price every day,” he says. “We’re wondering, ‘What’s going on there?’”
Alts to DCs
No time is a good time for trouble in an asset class, but some of the concerns about private credit come at a potentially perilous moment: Asset managers selling alternative investments are increasingly interested in increasing sales to investors in the $12 trillion defined contribution market.
After years of corporate pushes for wider access, President Donald Trump issued an August 2025 executive order directing federal agencies to make an easier pathway for alternative investments, such as private credit, to increase their role in DC plans. The executive order mandated regulators provide a regulatory framework for fiduciaries who wish to offer multi-asset solutions, such as target-date funds, that include private assets.
Proponents talk up private assets’ potential for less volatility and improved returns and insist the semi-illiquid investment structures assure investor liquidity. Naysayers insist private assets lack transparency and clear fee structures.
Jack Shannon, an equity strategies principal in Morningstar, says semi-illiquid funds create plenty of pressure points. In a recent report, Shannon pointed out that incentive fee structures in semi-liquid funds seldom reward true investment skill; instead, they encourage excessive risk-taking, he says. To Shannon, the incentive fees paid for these funds make it difficult to parse out the true cost and net investment return of the fund, which would be problematic in a DC plan investment menu.
Meanwhile, Shannon says recent incidents of fraud, such as that perpetrated at Tricolor, and unexpected redemption requests have created some instability in the private credit market. As a result, he says, institutional investors should focus on identifying the best risk managers when investing in private credit. However, until the market goes through a full cycle, identifying the top risk managers is a challenge.
With private credit funds facing their first true test of outflows, alternative asset managers are facing their first real liquidity test with the asset class. Liquidity management would be crucial for any funds that existed as a DC plan investment.
“Once you get outflows, it can really trigger some issues in your fund,” Shannon says. “Because most funds that include private credit have only dealt with inflows, it now raises questions of how to manage liquidity.”
Tags: Private Credit, redemptions