Is private credit about to blow?

“When you see one cockroach, there’s probably more.” Remember who said that?

Long-time Intriguers will recall it was JP Morgan’s billionaire boss, Jamie Dimon, referring to some of the jitters around private credit late last year. And… maybe it’s just the cat, but we’re hearing some scratching and scurrying sounds under the couch again.

What’s going on?

Recall after the 2008 crisis, banks tightened their lending, meaning rivers of cash instead flowed into the high-yield, high-risk, and low-regulation world of direct lending — that’s companies quietly negotiating loans directly between themselves, rather than from a bank.

This private credit has theoretically been a win-win: lenders earn higher interest, and in return, borrowers get more loan speed, certainty, and flexibility.

But we say ‘theoretically‘ because several of the big-name funds in private credit are now facing redemption waves — too many investors suddenly saying they want their money back, forcing delays and/or denials from Wall Street desks like…

• A $26B BlackRock fund
• An $8B Morgan Stanley fund
• A $25B Apollo fund, and
• An $11B Ares fund.

Plus news broke over the Easter weekend that a $5B fund out of Barings just joined this redemption cap list, curbing withdrawals at 5% after investors tried to yoink 11%. So… what’s going on?

There are three main theories.

The first (promoted by private credit folks) is this is all working exactly as intended: these 5% quarterly redemption gates are a feature, not a bug. The whole idea is to give investors some liquidity in case they need a bit of cash, while protecting the longer-term health of the fund and the remaining shareholders. Otherwise, funds have to fire-sell loans to return cash to investors, delivering unnecessarily crappy returns to everyone.

Under this theory, jittery investors are trying to pull up the drawbridge in our wild world, but it’s got nothing to do with the actual health of these funds or their underlying loans.

A second theory is it’s part of the ongoing SaaSpocalypse (we prefer ‘SaaSacre‘). With new AI tools now enabling tech-illiterate randoms to casually recreate entire multi-billion-dollar software-as-a-service (SaaS) giants, markets are scanning for any exposure to (say) a resulting collapse in tech revenues and/or spike in defaults. And can you guess who’s been writing big loans to Silicon Valley lately? Yes! Private credit funds.

The most spectacular example has been Blue Owl, with investors trying to yank 22% out of its flagship $36B fund, and 41% out of its more tech-focused fund. But those other big-name funds above are also exposed, with tech firms featuring heavily in their ledgers.

A third theory is these private credit headlines reflect real, broader economic stress. Key default indicators already hit their highest-ever rates in January (roughly double the 2025 average), but reality could be even worse — remember how private credit has great flexibility? This also means that rather than defaulting, stressed borrowers might resort to quieter options like ‘payment-in-kind’ (adding their missed interest payments to the loan principal), or temporarily relaxing their loan maturity and covenant terms.

And that gets to some of the downsides around private credit: it’s pretty opaque, with valuations updated quarterly by fund managers themselves, rather than constantly by markets. The result is investors might fear a sudden quarterly write-down, like BlackRock just delivered via one of its smaller funds, which recorded two hero-to-zero wipeouts in as many quarters (defaults from a home remodelling roll-up then Amazon aggregator).

So… we might need more roach-spray?

Intrigue’s Take

Welcome to Intrigue’s Take, where you’re going to want our view on two obvious questions:

First, which theory do we buy? Don’t get mad, but it’s a bit of all three: the SaaSacre is real, and those rising default rates are real, too. But yes, the funds are also now working as intended — those 5% redemption gates prevent a few cockroaches from needlessly infecting the whole house. The thing is, those same gates also hide our visibility of how many other cockroaches are even there, so it’s possible this is bigger than a few over-leveraged, AI-exposed tech firms.

Second, how bad could this get? The whole private credit sector is worth maybe $1.8T, aka an Australia, a Mexico, or a South Korea. Or in company terms, we’re talking the entire market cap of Taiwan’s TSMC semiconductor giant. So we’re clearly dealing with meaningful numbers here. But if you want to put it all in context, consider (per Dimon’s own shareholder letter yesterday), the entire US residential mortgage sector is now worth ~$13T, hence his line that, “in the great scheme of things, private credit probably does not present a systemic risk.”

But that’s not the same as concluding we can or should shrug this all off — there’s now real capital trapped behind those gates, unavailable for redeployment to hose other fires or seize other opportunities. So that liquidity mismatch means we’re still looking at a risk of (say) slower deal-flow, higher borrowing costs, and/or bigger market swings ahead.