Private credit – an asset class consisting of direct, unlisted loans to mid-sized companies, without the involvement of a bank – has been in the news a lot in recent months, and mostly in a negative way. Write-downs, revaluations, and outflows are being widely reported in the media and are causing significant turmoil. In this update, we would like to share our perspective on the latest developments.
The current turmoil was triggered by the fraud cases involving Tricolor and First Brands in late 2025, but the unrest has recently intensified as several large fund managers have begun managing their outflows by implementing a redemption cap — a measure that typically limits outflows to 5% of the fund’s assets. So far, these outflows have primarily come from retail investors selling their positions because they are concerned about the quality of the loans issued. This is further exacerbated by the sell-off in the software sector due to the rise of AI. This sector accounts for a significant portion of the market, representing approximately 25% of all loans issued.
In addition to the correction in the software sector, private credit is also grappling with widespread concerns that the explosive growth in the number of loans issued has led to a decline in the quality of lending. The exuberant growth in assets under management of private credit funds fueled lending, while loan covenants were relaxed. This means that the number of non-performing loans is likely to rise in the future. Currently, they remain below 2%, but a doubling to 4% or higher is possible.
For us as private credit investors, however, this does not necessarily mean we are negative about the outlook. We believe that the credit spread on offer is more than sufficient relative to the risk of a rise in non-performing loans. By diversifying across regions, sectors, and fund managers — and by focusing on the less risky, senior secured segment — we expect fewer defaults than the broader market.
In addition, we rely on the quality of our fund managers, whose historical loss rates are well below the market average. So far, they have reported no increase in defaults, no major outflows (most actually have net inflows), and therefore no redemption restrictions. To ensure stability, we also take care to ensure that their underlying investors are primarily institutional.
In our view, the root of the turmoil is a loss of confidence, particularly among retail investors, coupled with a lack of liquidity in the asset class. In private markets, trust is and remains a tricky thing. As an investor, it is difficult to properly verify whether the fund manager’s valuations of the underlying investments hold up. And if, for whatever reason, doubts arise about this, you, as a fund manager, run the risk that investors will demand their money back. If this happens on a large enough scale, the lack of liquidity in the underlying investments becomes a limiting factor. The manager then raises a gate to protect existing investors, and confidence declines even further.
The media is further stoking this fire with comparisons to the Great Financial Crisis, which we find completely misguided. In terms of its underlying structure, private credit is much more robust than bank lending, who are always vulnerable to a bank run in a panic phase. For us, the main question right now is whether, as an investor, you can expect a good return on private credit — not whether you’ll get your investment back. There will certainly be funds that disappoint investors with bad returns, but there is no systemic risk.
When the right conditions are met — such as extensive diversification, sound manager selection, low costs (never pay fees on committed capital for senior secured private credit), and preferably an open-ended “evergreen” structure — private credit remains an excellent asset class for the future.
BY: WOUTER STURKENBOOM, Chief Investment Officer