Private credit has seen significant growth over the past 15 years, with recent research from the Alternative Investment Management Association (AIMA) valuing the private credit market at $3.5T in assets under management (AUM),1 while PitchBook estimates that it could grow to $5T by 2029.2
For most of this growth period, private credit assets have been illiquid, closed-end products, with lenders embarking on long-term relationships with borrowers, working with businesses to ensure stability throughout the lifetime of the loan. Meanwhile, investors understood that committed capital was locked in for the duration.
More recently, however, we began to see new private credit funds with semi-liquid characteristics, designed to attract retail investors that were looking for opportunities, but required some flexibility in terms of capital redemption.
While the emergence of semi-liquid private credit has significantly influenced current market dynamics, the asset class’s growth trajectory began long before this development.
Read on to learn more about:
- The rise of private credit
- The move to semi-liquid funds
- Market pressures and liquidity concerns
- Redemption stress and investor confidence
- The outlook for private credit
The Rise of Private Credit
While private credit has existed as an alternative loan vehicle since the 1980s, it was the aftermath of the 2008 financial crisis that really paved the way for growth. New banking regulations designed to ensure financial stability and avoid the levels of risk that led to the 2008 collapse, combined with a reduced risk appetite within the banking industry—especially in the mid-market space—opened the door for private credit as an alternate source of finance for leveraged buyouts and debt restructuring.
With banks retreating from the mid-market sector, private credit offered a simpler, quicker and more flexible solution. Although these loans typically carried a premium over a conventional BSL product, borrowers could have greater confidence in the deal closing, while also negotiating customized terms that aligned with the business strategy and cash-flow position.
More recently, private credit growth has extended beyond the mid-market, with many $1B+ funds already in play. In October 2025, Blackstone deployed a $1B+ private credit package to refinance Signant Health, replacing more than $1B in bank loans.3 Just four months later, in February 2026, Blackstone again raised more than $1B in private credit to support the acquisition of Champions Group.4
But this growth in both the volume and size of private credit deals required significant investment, and securing those new investors meant creating alternative opportunities to the traditional closed-end funds.
The Move to Semi-Liquid Funds
In a recent insight report,5 Morgan Stanley described semi-liquid private credit as “a quiet revolution,” with these funds “democratising access to alternatives.” In essence, the creation of semi-liquid private credit funds opened the door to retail investors, high-net-worth individuals and wealth managers looking to capitalise on the impressive rate of return seen in the private credit market, while still having the option to withdraw their capital if they wished.
Semi-liquid private credit funds are open-ended, making them more flexible and allowing investors to avoid the long-term lock-in associated with closed-end funds. Also, unlike closed-end funds that require commitment of capital and periodic drawdowns throughout the life of the loan, these open-ended, semi-liquid funds operate on immediate capital deployment, making it easier for investors to manage exposure.
But the most compelling aspect of these semi-liquid funds for retail investors is the inclusion of redemption windows. These funds offer investors the option of withdrawing capital periodically—usually at quarterly intervals—providing a measure of liquidity and peace of mind, should an investor require access to some or all their deployed capital. The need to hold a percentage of cash for redemption can potentially reduce the rate of return compared to a closed-end fund, but for retail investors, the ability to withdraw capital is a worthwhile trade-off.
While redemption windows are baked into these funds, there are also gates in place to limit the total redemption payout in each window. This limit is generally set as a percentage of the net asset value, with many funds gating at 5% of NAV. Should redemption requests exceed the gate value, a pro rata formula can be employed, limiting the total payout to the gate percentage, and sharing across the requesting investors accordingly. Some funds, however, may choose to raise the gate and pay redemption requests in full, if there is enough cash available.
Market Pressures and Liquidity Concerns
Despite exhibiting continued growth through 2025, the private credit sector also started to show signs of stress. Rising interest rates put increasing financial pressure on borrowers as loans became more expensive to service, while limited economic growth negatively affected cash flow and reduced businesses’ ability to adequately manage their debt.
September 2025 also saw two high-profile bankruptcies in the shape of Tricolor Holdings and First Brands Group, both of which carried significant private credit and bank debt. But while these bankruptcies represented major examples of debt default, they weren’t an indication of a market trend, with allegations of fraud and mismanagement surrounding both instances. However, despite the idiosyncratic nature of these defaults, they still impacted market confidence.
Pressure intensified as artificial intelligence gained momentum and raised concerns about its potential impact on the software industry. With demonstrations showing that AI platforms have the potential to autonomously code software, the value of software-based technology companies came into question. Software-as-a-service (SaaS) businesses had seen huge valuations based on the intellectual property of their codebase and engineering talent writing it, many market participants were being told that AI could perform these tasks faster, more cheaply, and more effectively.
Although AI is not yet capable of autonomously developing and supporting complex software platforms, growing claims about its future capabilities weakened confidence in the software sector. With private credit funds highly exposed to the software sector—software exposure in private credit portfolios is estimated at more than 20%6—and with many software companies possessing limited tangible assets, reduced confidence in and valuation of the sector have significantly impacted private credit BDCs invested in it.
Redemption Stress and Investor Confidence
While the semi-liquid, open-ended funds proved to be a successful draw for retail investors, ultimately increasing the capital available to the private credit market, those same retail investors and high-net-worth individuals were always likely to react to changing market conditions. And in early 2026, that reaction manifested as an extremely high volume of redemption requests, with investors specifically eager to extricate themselves from funds with significant software industry exposure.
According to the Financial Times,7 investors in semi-liquid private credit funds requested over $20B in redemptions within the first quarter of 2026, highlighting the key difference between institutional investors that take a longer-term view and position, and retail investors who can be more focused on protecting their personal wealth.
That need to protect the value of an investment was the reason that these semi-liquid funds were created—along with the redemption windows baked into them. But those redemption windows don’t signify limitless liquidity within a fund—hence the gates put in place to limit withdrawals to a set percentage of NAV.
A recent report from the European Capital Markets Institute8 proposes that a lack of liquidity is not the problem for private credit; the real problem is “the illusion of liquidity.” The report argues that the opportunity for periodic exits does not change the fact that much of the fund is illiquid, and if enough investors want their money out, there simply won’t be enough liquidity to deliver on those requests.
The mass redemption requests seen in Q1 2026 affected myriad private credit funds, with some choosing to honour all withdrawals in full, even when the total exceeded the agreed redemption cap. While others limited withdrawals in accordance with those caps, citing the need to protect the fund, its assets and the remaining investors. While there is no definitive right or wrong here, there is a delicate balance between protecting the integrity of the fund, while also ensuring that it remains an attractive proposition for future investors.
The discussion about whether private credit is the right vehicle for retail investors will likely continue. In an interview with The Financial Times,9 hedge-fund billionaire Ken Griffin raised the question of whether wealthy individuals truly understand the risks when investing in private credit.
“Retail was viewed as a phenomenal channel from which to raise assets,” said Griffin. “But did the retail investors really understand the nature of the investment they were making?”
The Outlook for Private Credit
Despite the pressures and stress that private credit has undergone in recent months, it remains an attractive option, especially for private equity players looking for LBO funding or portfolio debt restructuring.
It’s also worth remembering that the recent liquidity concerns are limited to the newer semi-liquid funds, and according to Invesco,10 those funds account for only 14% of the total private credit assets under management.
While private credit will undoubtedly continue to grow, the BSL bounce back is also set to gain momentum. With bank regulators in the U.S. relaxing some of the rules put in place after the 2008 crash,11 banks will likely begin regaining some share of the mid-market.
Conclusion
While recent headlines may have painted a picture of stress and loss of confidence in the private credit sector, the reality is somewhat less sensational. The newer, semi-liquid funds make up a relatively small percentage of the total private credit AUM, and the traditional closed-end funds are not affected by retail investor confidence.
The growth of private credit beyond the mid-market has opened new opportunities, with multiple $1B+ funds already in play. And while the impact of AI on the software sector is disruptive, the longer-term effect on funds with heavy software and SaaS exposure is yet to be seen.
Even as banks start to regain their appetite for the mid-market space, private credit can still deliver faster, customized loan structures that are more attractive to mid-market borrowers.
Footnotes:
2 https://www.morganstanley.com/ideas/private-credit-outlook-considerations
7 https://www.ft.com/content/3513f9df-18dd-4ea4-ae20-3523988c106c?syn-25a6b1a6=1
9 https://www.ft.com/content/130a68e2-d8cc-449b-a32a-a0b8e2471e89?syn-25a6b1a6=1
10 https://www.invesco.com/us/en/insights/private-credit-today-separating-fact-from-fiction.html
Renee is the Managing Director of Loan Agency at SRS Acquiom. Based out of Minnesota, she manages the company’s Loan Agency department.
Before joining SRS Acquiom, Renee served as an administrative vice president at Wilmington Trust, N.A., most recently leading the loan agency and restructuring products. In addition to her 10 years at Wilmington Trust, she also worked at Wells Fargo Bank, N.A. in both the corporate trust and shareholder service departments.
Renee received a J.D. from Mitchell Hamline School of Law, a B.A. in History and Political Science from Azusa Pacific University and is a member of the Minnesota Bar.