While cracks have been emerging within the US$2 trillion private credit (PC) market for some time, investor and regulator "alarm bells" are now flashing red following revelations that a growing number of funds are limiting the amount of capital investors can withdraw at once.
Due to deteriorating credit quality, liquidity "gating", and opaque valuation practices, PC funds have been making investors nervous for some time.
Since high-profile defaults started to surface last year, including last September’s bankruptcy of subprime auto lender, Tricolor Holdings and First Brands Group - with $10 billion in debt - Goldman Sachs, UBS, and JPMorgan Chase have expressed concerns about the underwriting quality in private credit.
What’s also fanning investor angst about the sector are Fitch Ratings’ revelations that default rates in private credit hit a record 9.2% in 2025, up from 8.1% in 2024.
Risks are spreading
Here in Australia, the Reserve Bank (RBA) joined a growing chorus of sceptics towards the sector when it warned investors the vulnerabilities of the United States and United Kingdom private credit markets could spill over into Australia.
It’s understood that banks reported more than $1 billion write-downs from their direct lending to these firms, as well as their exposures through credit funds and warehouse lending facilities.
As a case in point, beyond Tricolor Holdings and First Brands Group, BlackRock's private credit fund HPS Corporate Lending Fund (HLEND) recently activated its 5% limit after investors sought to take out $1.2 billion.
Blackstone, Morgan Stanley and Cliffwater have also experienced a surge in redemption requests and capped withdrawals.
"Concerns have also grown among investors around private credit and private equity exposures to the software industry, where valuations have come under pressure in the face of potential disruption from AI-based competition," the RBA said.
Australia’s central bank is also worries about conflict in the Middle East triggering a larger shock that destabilises the global economy, especially if supply disruptions to oil and other commodity markets are prolonged.
Meantime, while private credit has continued to grow strongly in Australia, cracks have been surfacing for a while.
Local cracks
Late last year the Australian regulator, (ASIC) issued "stop orders" on several Australian funds due to concerns about their Target Market Determinations (TMD), effectively restricting new investments and certain dealings.
The Gemi First Mortgage Fund suspended redemptions in January 2025 to maintain cash levels after property developers failed to make overdue repayments.
In July 2025, the Merricks Capital Partners Fund (managed by Regal Partners) delayed redemptions due to a lack of "unallocated cash".
Two months later La Trobe Australian Credit Fund was hit with interim stop orders for its 12-month and 2-year account products, while RELI Capital Mortgage Fund issued a 21-day stop order in September 2025 regarding its risk level descriptions.
Jump to March 2026 and global funds with Australian exposure have started to implement limits or "gated" redemptions.
Gated redemptions
Apollo Global has become the fourth private credit fund in recent weeks to see heightened redemptions.
The firm has capped redemptions from its US$15 billion Apollo Debt Solutions (ADS) fund after requests exceeded 11% of outstanding shares, double its typical 5% quarterly redemption cap.
The recent rush by ADS investors to exit, follows recent withdrawals at Blue Owl, from Blackstone’s BCRED fund - the world’s largest private credit fund at US$83 billion - and from BlackRock’s HPS Corporate Lending fund.
It’s understood that unlike Blue Owl and Blackstone, Apollo hasn’t budged from its 5% limit which means investors seeking redemptions will receive only 45% of the capital requested.
Apollo attempted to appease investors by suggesting that it had entered the current period of technological disruption from a position of strength.
“Apollo has consciously chosen to create portfolios that are underweight software exposure relative to the broader private credit markets, guided by our commitment to cash-flow-based underwriting,” the fund told the market.
“For ADS, this translates to approximately 20-30% lower software exposure than its peer set.”
Meanwhile, Ares Strategic Income Fund, managing $10.7 billion has capped withdrawals at 5% after clients requested to redeem 11.6% of shares.
Unsurprisingly, the surge in redemption requests has prompted debate about the suitability of direct lending for investors seeking occasional liquidity.
It’s true, some managers, like Blue Owl Capital, have sold assets or injected employee cash to meet requests.
Gated option better than fire-sales
However, Martin Randall, head of private markets at LGT Wealth Management suggests gating redemptions is a better option than managers trying to offload assets on the cheap in order to meet these redemptions.
Randall reminds the market that firms initiating gates on these funds should be seen as offering a form of investor protection especially where less liquid assets or longer-hold trades are in play.
“Should redemption pressures persist, we would want to see these managers stick to the redemption terms and provide liquidity when available without compromising the portfolio by selling assets to meet unrealistic liquidity expectations,” he said.
“We would be more concerned if managers compromise and seek to fire sell assets to meet redemption pressures.”
