Private credit is one of Wall Street’s biggest growth engines in recent years. It went from being worth $500 billion in 2015 to over $3 trillion today.

Due to its rapid growth, private credit has attracted everyone from Wall Street giants to insurance companies and pension funds.

Unfortunately, private credit’s rapid ascent may be heading to a standstill, as the market is now facing a wave of redemptions, spurred by investor concerns regarding its transparency and overall stability.

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Private credit has grown rapidly in over a decade. In 2015, it was worth roughly $500 billion. Fast forward to today, its global value stands at over $3 trillion.

Due to its rapid growth, private credit has attracted everyone from Wall Street giants to insurance companies and pension funds.

Unfortunately, this industry’s rapid growth might be headed to a standstill following a series of events that stoked investor concerns about the market’s transparency and stability in the past year.

Last year, issues surrounding private credit were put front and center when the National Association of Insurance Commissioners (“NAIC”) issued a warning—which was eventually retracted—about Egan-Jones’ credit ratings.

According to the report, ratings from firms like Egan-Jones were consistently more generous than internal assessments by as much as six grade levels. In other words, Egan-Jones’ private credit ratings didn’t accurately reflect lenders’ true risks.

Then, later on in 2025, subprime auto lender Tricolor and auto supplier First Brands left Wall Street lenders exposed after the pair underwent bankruptcies. JPMorgan (JPM) wrote off around $170 million following Tricolor’s collapse while Fifth Third (FITB) was hit with a $200 million loss.

Unfortunately, private credit’s woes continued well into the early months of 2026. And this time, AI was the catalyst.

The software sector was hit with a wave of selloffs following new developments in AI. This occurred after investors were spooked by the potential of AI to disrupt the software sector. The S&P Software & Services Select Industry Index (XSW) is down nearly 20% year-to-date, with selloffs even spreading to unrelated companies and industries. 

Private credit firms are facing pressure due to their exposure to software companies. According to estimates, collateralized loan obligations have a 19% exposure to software. Default rates in direct lending are also forecasted to climb to 8%.

With the market exposed, private credit firms are seeing widespread redemptions. Chief among them is Cliffwater, which recently revealed to clients that investors in its largest fund requested to cash out roughly 14% of their money this quarter. The $33 billion fund will honor about 50% of the redemption requests.

Beyond Cliffwater, Blackstone, BlackRock, Morgan Stanley, and Monroe Capital have also reported redemptions over the past few weeks. According to Financial Times estimates, the collective value of redemption requests these firms have received amounts to $10.1 billion, with 70% of these requests set to be honored.

Unfortunately, the number estimated by FT is forecasted to grow in the next few weeks.

The wave of redemptions hitting the private credit market right now isn’t just due to AI-induced investor anxieties.

Investors are heading for the exits simply because it’s difficult for them to understand what they’re buying into.

Take Cliffwater’s fund for example. In its most recent quarterly report, the firm listed over 3,600 individual holdings, which include loans to middle-market corporate borrowers and stakes in other private credit funds. The names found in these disclosures are composed of unrecognizable names. 

Moreover, unfunded loan commitments totaling nearly $7 billion to 1,000 borrowers were also listed.

Given this opacity and complexity, redemptions become unsurprising, especially during times of economic volatility and uncertainty.

This isn’t to say private credit is inherently bad. In many cases, it steps in when traditional banks won’t, providing financing to small and midsize firms that do not have access to funding from traditional banks.

However, given private credit’s lack of transparency and regulation, investors must look beyond this market’s rapid growth to account for its inherent risks.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research