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Private Credit Panic Spreads As Consumer Loan Fund Gates Investors, JPMorgan Pulls Deal, Apollo Sees 20 Cent Recoveries

While the world's attention is understandably stuck to every latest development in the Iran war, the newsflow surrounding domestic ground zero for what could very well be the next financial crisis, private credit, keeps on getting worse.

First, for those who have not kept up with the spectacular slow-motion (at first, although it is now accelerating at a staggering pace) private credit disaster, we suggest catching up with these must-read articles detailing the bursting of the private credit bubble, and how we got to where we are :

For those pressed for time, the arc of the crisis goes something like this. In late January and early February, UBS and Barclays independently published research reports revealing the extensive exposure of the private credit industry to software loans. As the following Barclays chart revealed, business products and services accounted for about 30% of private credit portfolios as of 3Q25, while information technology made up around a quarter, or 55% of the total loan book when combined.

Using more granular sector classifications, software/SaaS rose to the largest sector exposure across the BDC industry, at around 20% of fair value.

This revelation came just as Anthropic's Claude was systematically obliterating one software company and sector after another with its multipurpose agents, sending software stock prices plunging and sparking a panic on Wall Street about the long-term viability and industry moat of software, when faced with such a faceless and disruptive opponent as AI.

And with stock prices suddenly collapsing, questions immediately emerged about the predictability and sanctity of cash flows backing the loans in these same software companies, which also make up the bulk of private credit portfolios.

This is when the Private Credit house of cards started to fall.

So fast-forwarding to today (assuming readers have caught up with all the most notable developments hyperlinked above), we jump right into the latest adverse news starting with a report from the WSJ that a fund holding consumer and small-business loans made by companies including Affirm and Block, is the latest corner of the private-credit market to come under stress.

According to the report, Stone Ridge Asset Management told clients in the fund last week that recent redemption requests were so high that it would honor only 11% of the amount investors wanted back. In other words, it is gating the rest.

This is confirmation that investors' worst fears about private credit are broadening because unlike other private-credit funds that experienced a flight of investors in recent weeks, Stone Ridge’s fund didn’t hold loans to software makers or other corporate sectors that investors fear will be displaced by advances in artificial intelligence. Instead, its exposure was simply to the good,old US consumer, and especially those in the wrong-half of the K-shaped economy who using fintechs (i.e., modern day emergency lenders) as intermediaries.

The Stone Ridge Alternative Lending Risk Premium Fund buys whole loans and securities backed by loans made by fintech lenders. That includes buy-now-pay-later loans from Affirm, personal loans from LendingClub and Upstart and loans that payments companies like Block and Stripe offer to merchants using their platforms.

LENDX, as the fund is also known, owned $2.4 billion of total assets at the end of November, and $1.6 billion of net assets.

Like the previously discussed CliffWater, LENDX is structured as an interval fund, meaning it must offer to repurchase at least 5% of shares outstanding each quarter. The shares don’t trade publicly, so investors who want to exit have to submit redemption requests to Stone Ridge during predetermined windows, the most recent of which ended on March 6.

Similar to other gating funds, Stone Ridge didn’t update what percentage of overall LENDX shares investors wanted to redeem. What we do know is that in February, the firm offered in February to repurchase as much as 7% of its shares outstanding, with an option to buy back an additional 2% of shares if its offer was oversubscribed. The fact that it had to gate investors beyond 11% of redemption requests shows just how much worse the private credit crisis is getting.

With countless investors now rushing to cash out of private credit in recent weeks, fund managers have had to grapple with whether to relax their existing redemption limits. As we reported recently, Cliffwater, another interval fund, is paying out about 50% of redemptions requests it received at the Cliffwater Corporate Lending Fund.

With $31 billion of assets under management at the end of 2025, Stone Ridge is a smaller player in private credit. The firm also manages investments in fine art, energy, reinsurance risk and, through its NYDIG affiliate, bitcoin.

Ross Stevens is the founder of Stone Ridge and chief executive of its parent company. Stevens made headlines in January when he gave a record $100 million gift to the U.S. Olympic & Paralympic Committee that included $200,000 for each athlete competing in the Milan Cortina Games. His investors, who are now gated and can't get their money back, would probably prefer that the money had gone to them instead.

Putting some context on the redemption flood that has hammered private credit funds, the FT writes that wealthy individuals have sought to pull more than $10bn from some of the largest private credit funds in the first quarter, prompting investment managers to gate investors and threatening to stall one of Wall Street’s most important sources of growth.

As reported previously, debt funds managed by powerhouse firms including Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital have agreed to honor only 70% of the $10.1bn of redemption requests they have faced, according to FT calculations. That number is expected to spike over the next two weeks, as funds managed by Ares Management, Apollo Global, Blue Owl, Oaktree and Goldman Sachs tally up how many of their investors are heading for the exits, as discussed here.

Some on Wall Street, such as this website first...

If only there was another moment when oil was about to hit $150 and a major financial crisis had already quietly emerged
— zerohedge (@zerohedge) March 12, 2026

... and subsequently BofA's Michael Hartnett and Mohamed El-Erian, have said the turmoil sweeping the $1.8 trillion industry are reminiscent of the early days of the 2008 financial crisis, when it was "subprime that was contained" only to emerge that it wasn't.

Still, many private capital executives told the FT they were perplexed by what they felt was an indiscriminate sell-off that did not reflect the performance of their portfolios.

Whether merited or not, the funds that have already reported withdrawals manage investment portfolios worth about $166bn, a fraction of the roughly $1.5tn invested across direct lending funds. But these vehicles have been among the fastest-growing corners of the private investment industry, providing a building block for money managers as they set their sights on cracking the $9tn US retirement market.

The redemptions have reversed a five-year stretch in which nearly $200bn flowed into the debt funds of large private market groups, helping to spur a boom in their growth and profitability. This reversal has led investors to question whether private capital groups deserve their once rich valuations relative to the broader market.

And, as regular readers are aware, the private credit bank run - because let's fact it, that's precisely what it is - has caused ferocious selling pressure on the stocks of firms such as Blackstone, KKR, Blue Owl, Ares and Apollo, whose shares have plunged by 25% or more this year, shedding more than $100bn in combined market value.

Goldman analysts calculated that retail credit funds saw their assets increase from $34bn at the end of 2021 to $222bn at the end of last year. But that growth has gone in reverse this year. After a wave of redemptions underscored the risk that investors cannot always get their money back, Goldman now predicts Private Credit funds could shed $45bn to $70bn in assets over the next two years.

Or more, if Wall Street's biggest institutions pull the plug on the sector. JPMorgan appears to already be doing that: After the largest US bank limited lending to private credit groups after marking down loan collateral a week ago, a group of banks led by JPMorgan pulled the planned $5.3bn debt issuance by Qualtrics International after early investor interest failed to materialize amid concerns over the company’s exposure to the software sector.

According to the report, leveraged loan and high-yield bond investors were hesitant to take on the new debt due to potential disruption from artificial intelligence, particularly given the volatility in software stocks. As a result, the banks suspended initial discussions on the financing.

Qualtrics’ existing $1.5bn loan maturing in 2030 has already fallen to around 86 cents on the dollar from near par in February, making secondary market purchases more attractive than the proposed new issuance.

Qualtrics, which makes online survey tools, agreed to buy data analytics firm Press Ganey Forsta in October, in a deal valued at $6.75 billion. It had been looking to raise debt for the acquisition, and banks started holding early discussions with investors on the financing in late February, with a view to start selling the debt in March, Bloomberg News reported. The package was expected to comprise a $3.3 billion leveraged loan, while another $2 billion was slated to be sold to investors in either the junk bond or private credit markets.

Last October, when private credit prospects were far rosier, 11 lenders provided committed debt financing for the Press Ganey acquisition. While it’s not clear exactly when that deal will close, banks will have to fund it themselves if they cannot sell the debt to investors in the capital markets. The lenders could attempt to offload the loan at a significant discount. Steep price cuts risk eroding fees or may even potentially result in losses.

The ongoing devastation in private credit has prompted some of the biggest and most reputable investors to speak up.

According to PIMCO, mounting strains in the $1.8 trillion private credit market are giving investors a reality check and making them pay more attention to the illiquid nature of the asset class, and whether they are being adequately compensated for the risks.

"The big lesson of all of this is that, from an investor standpoint, this is a little bit of a wake-up moment,” said Lotfi Karoui, a multi-asset credit strategist at Pimco, on a March 17 podcast. “People will think a little more carefully” about where they deploy capital, the liquidity risk they have taken, and whether they are being paid enough for that, he said. Karoui, who was chief credit strategist at Goldman Sachs before joining Pimco earlier this year, said he also expects “a deep rethinking on how much illiquid risk” investors are taking in their multi-asset portfolios.

Then there is Sixth Street Partners, which said that the $1.8 trillion private credit industry may need years to work through an “intense yet warranted reset” that has caused a wave of redemptions from some of the market’s biggest funds.

“While some may believe today’s volatility is only a minor episode to be weathered, we believe there is going to be an honest reckoning for the sector resulting in a healthier and more resilient direct lending industry,” Sixth Street Specialty Lending, one of the firm’s funds, wrote in a letter to investors on Tuesday.

The combination of fear and weaker performance has crushed trust in the industry, causing investors to push down the price of publicly traded business development companies and forcing some managers to gate their non-listed vehicles, according to Sixth Street.

The proliferation of new vehicles targeting retail investors that sought to gather assets as quickly as possible weakened underwriting standards. Managers that are now using available liquidity to meet redemptions from non-traded funds will face lower returns going forward, which in turn may drive more capital away.

“We do not believe this environment will reverse in one quarter,” the fund, which trades under the ticker TSLX, told investors. “If the non-traded REIT segment is any guide, this capital flow dynamic will last multiple years.”

Yet the most vocal criticism of Private Credit ca,e from none other than a fund that has been intimately tied to the industry, and which has the most to suffer, should Private Credit go tits up: we are talking about Private Equity giant (and, of course, should private credit be wiped out private equity will face a catastrophic day of reckoning of its own).

Speaking at a private UBS conference for select clients, Apollo's John Zito, co-president of Apollo's asset-management arm that is one of private-credit’s largest players, said that executives at the biggest private-credit lenders have sought to play down an exodus of investor money from their funds, making carefully worded television appearances to calm jitters about the sector.

To Zito what is happening in the Private Credit space is just the start: he called out “arrogance” in private markets, predicting that a private-credit loan made to a generic small or midsize “Joe Software Company” might recover 20 to 40 cents on the dollar. Ironically, at the same time as he was bashing his peers for doing just that, Zito detailed why he believes his own firm’s private-credit business is on solid footing, joining a chorus of similar comments from his peers.

Zito talked about the selloff in shares of large software companies, which was largely sparked by fears about artificial intelligence. He cautioned that smaller software companies bought by private equity, many with private-credit loans, could face even more challenging conditions. Those dismissing concerns by pointing to strong results from public companies are missing the point, he said.

“I’m not as rosy and I’m not as confident in what will happen with the technology. Anyone who tells you that . . . the earnings last quarter were really good so all is good, anyone who says that clearly doesn’t understand . . . Most of the businesses that were bought from 2018 to 2022 are lower quality than those companies, smaller than those companies and were trading at a much higher valuation than those companies and so I am concerned about many of [those] take-privates.”

He pointed to Thoma Bravo’s 2021 $6.4 billion take-private of the software firm Medallia in particular. Several lenders to Medallia, including Apollo, have already written down its debt.

“There will be an issue . . . with respect to that credit, which I think will be worse than people expect.”

Asked what kind of recovery rates he anticipates on a private-credit loan to a generic small or midsize “Joe Software Company,” Zito said:

“Joe Software Company, if he’s in the wrong place, I think is going to recover somewhere between 20 and 40 cents.”

Zito predicted that he expects private-credit loans originated in the next 12-18 months to be “much better vintage” as it relates to “quality of company, amount of leverage, documentation, spread.”

Unlike his peers, Zito also sees the bank run in the industry only getting worse. He weighed in on redemptions and whether private-credit managers should enforce limits, typically 5% of funds’ shares each quarter, or allow more investors to cash out when they are flooded with requests. It is a topic he and others on Wall Street have recently been asked about as funds take different approaches.

“You’re going to see elevated redemptions for a handful of quarters. I don’t know how long it lasts.”

Well with comments like that, it will last a long time especially since in its infinite wisdom, Wall Street decided to open private credit to retail investors, who have never seen a bank run they didn't feel like getting in front of.

We conclude with a quote from Diameter Capital's co-founder and managing partner, Scott Goodwin who made a rare appearance on X, to lay out what he views as the 6 most pressing problems facing private credit:

mislabeling or intentionally disguising the amount SaaS exposure in some porfolios
no concept of portfolio construction for some of the direct lending managers
mismarking and/or marking inconsistencies across funds
other uses of leverage away from the basic bank/bond/clo financing of direct lending - 2nd outs, jv’s, direct clo equity investments to juice returns and mask the real underlying leverage of the portfolio
250bln of the direct lending market is in “semi-liquid” products where underlying isn’t liquid at all
prisoners dilemma for LP’s of that last bucket - if you don’t redeem do you just get left with the turds?

Goodwin concludes that "everyone has to make their own opinion on the SaaS and AI disruptions threatened loans." The distressed debt specialist thinks that "there will be a very interesting secondary opportunity as entities look to sell to meet redemptions or reduce exposure to areas they are too overweight."

Putting it altogether, another distressed debt guru, Saba Capital's Boaz Weinstein, who recently has been making tender offers to BDC to take out their loans at a deep discount to par, said that what is stoking fear among the private credit community are "the massive declines in everything from OTF, TCPC, FSK, OXLC, BPRE, the tripling of outflows for Cliffwater and Blue Owl, the frauds, the rise in bad PIK, the mis-labeling of Saas, the embellishment of what portion of the portfolios are true 1L, and a whole lot more."

In other words, it will get much worse as all the private credit cockroaches finally emerge, before it gets even modestly better, a long time from now.

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