Rapid accumulation of risks in U.S. private credit: How far is the crisis?

In the past month, the private credit market in the United States has transformed from isolated default events into industry-wide structural pressures, with market risks significantly rising.

First, top alternative asset management companies including BlackRock, Apollo, Ares, Blackstone, and Blue Owl have recently faced redemption requests far exceeding historical norms. The industry has generally hit quarterly redemption limits (usually 5% of net asset value), prompting institutions to activate restriction mechanisms, leading to funds being passively locked.

For instance, BlackRock’s $26 billion HPS corporate loan fund received redemption requests of 9.3%, ultimately being able to redeem only 5% as per contractual limits; Apollo’s $25 billion debt solutions fund faced redemption requests as high as 11.2%, with the redemption ratio also limited to 5%. Subsequently, giants like Morgan Stanley and Ares followed suit with similar restrictive measures. By Q1 2026, $4.6 billion of investor funds had been restricted from redemption.

At the same time, public market pricing is rapidly deteriorating. The stock prices of listed business development companies (BDCs) have plummeted, with their average trading price falling to 0.78 times the reported net asset value; some BDCs are even trading at around half of their net asset value (NAV). This indicates a clear market skepticism regarding the quality of underlying assets in private credit and the authenticity of valuations. Non-listed private credit funds have also experienced negative returns, with Ares and Apollo funds recording their worst monthly performance since inception.

Moreover, expectations for default risk in the private credit market have risen sharply. As AI’s disruptive impact on the software industry becomes apparent, the direct loan default rate is heading towards 8%, nearing the peak levels seen during the pandemic, with extreme scenario default rates potentially reaching 15%.

Macroeconomic Contagion Has Not Yet Reached Crisis Levels

Despite the rapid accumulation of risks, it has not yet reached the level of a systemic crisis, primarily due to the structural damping of risk transmission mechanisms. On one hand, redemption restriction mechanisms block forced selling and price declines, reducing the likelihood of short-term systemic shocks. Funds are avoiding low-priced asset sales through liquidity restrictions, thus preventing price declines and the spread of market panic.