It’s felt more like winter than summer for private credit over the past few weeks.
Redemption headlines have dominated the news cycle, raising questions about liquidity, investor confidence, and whether the industry’s remarkable growth over the past decade is beginning to slow.
We believe that some of these warrant attention. Others, however, may risk conflating liquidity dynamics with underlying credit fundamentals.
While the broader picture remains mixed, recent developments appear to have reinforced the winter narrative. Two of the industry’s flagship wealth-focused private credit vehicles, Ares Strategic Income Fund and Apollo Debt Solutions, reported second-quarter redemption requests above expectations. Ares saw requests increase from 11.6% to 14.4%1 of net asset value, while Apollo’s rose from 11.2% to 16.8%.2
We think that the surprise wasn’t that the funds honored only their standard 5% quarterly repurchase limit—that has always been part of the product design—but rather that redemption requests accelerated despite earlier indications that pressure, particularly among U.S. wealth investors, had begun to moderate.
We believe the recent activity could be driven more by investor liquidity preferences than by deterioration in underlying portfolios, where there remains little evidence of broad credit weakness, and exposures often remain concentrated in senior-secured private loans.
It’s also worth clarifying what the widely discussed “5% redemption cap” actually means. Unlike a traditional hedge fund gate imposed during periods of stress, the quarterly repurchase limit is a structural feature of many perpetual business development companies (BDCs) and semi-liquid private credit funds. Investors agree to those terms when they invest.
If redemption requests exceed 5% in a given quarter, it’s expected that funds will fulfill their commitments and carry forward balances in accordance with their repurchase policies.
A related consideration may be an evolution of the investor base.
Private credit is no longer an emerging institutional asset class. Since the early 2020s, managers have increasingly expanded into the wealth channel, bringing semi-liquid products to financial advisors and individual investors.3 This expansion has likely contributed to evolving investor expectations around liquidity and access.
Institutional investors have generally been comfortable with long holding periods. Wealth investors, understandably, often place greater value on periodic access to capital. Recent redemption activity may therefore say as much about changing investor expectations as it does about the underlying loans themselves.
Software remains one of the larger sector exposures in BDC portfolios, averaging 19.7% across a sample of 12 non-traded BDCs at year-end 2025.4 That has led some to question the implications for private credit.
But software exposure in private credit differs from equity ownership. While equity investors are directly exposed to changes in long-term company valuations, private credit managers typically hold loans that mature within two to five years. Those shorter maturities provide regular opportunities to reassess credit quality and adjust portfolio exposures as market conditions evolve.
Notably, conversations we’ve had with several BDC managers over the past two weeks suggest conditions may be improving at the margins.
BDC bond spreads remain issuer-specific, but recent trading still suggests institutional support for higher-quality issuers. For example, as of Raymond James’ June 25 BDC update, index-eligible BDC senior notes were trading at a mean spread of 213 bps, tighter than the 225-bps average at issuance.5
Additionally, FS KKR Capital’s recent $900 million senior unsecured note offering was reportedly oversubscribed despite the company’s downgrade below investment grade earlier this year.6 This suggests institutional bond investors continue to view the sector more favorably than recent redemption headlines alone might imply.
And there’s evidence recent market volatility may have shifted some negotiating leverage back toward lenders, enabling larger managers to originate new loans with higher spreads, stronger documentation, and fewer payment-in-kind (PIK) features. In short, today’s environment may ultimately produce better risk-adjusted lending opportunities than the highly competitive market of recent years.
And while Fitch Ratings reported average BDC non-accruals of approximately 2.2% of debt investments in 20257—higher than the unusually benign post-COVID period—they remain well below levels typically associated with severe credit stress.
None of this suggests the industry is out of the cold. In fact, we believe that private credit has yet to experience a full modern credit cycle, and this period could provide an important proving ground for underwriting discipline, portfolio construction, and manager selection.
Over time, if underwriting remains disciplined and liquidity expectations better align with the structure of the asset class, an eventual thaw could leave the industry stronger than it entered.
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