Private credit jitters spill into Wall Street, triggering pullback by banks, funds
Synopsis
Private credit market stress is impacting Wall Street, with banks cutting exposure and funds limiting withdrawals as investor caution rises.
Strains in the private credit market are spilling over into Wall Street, with major US banks tightening lending and investment funds restricting withdrawals as concerns over valuations, transparency and credit risks prompt investors to scale back exposure, Reuters reported.
Key highlights
- Private credit stress spreading to Wall Street amid investor concerns
- US banks tightening lending and marking down loan values
- Major funds including BlackRock and Blackstone restrict withdrawals
- Investors pulling billions from private credit funds
- Exposure to software sector and AI disruption risks under scrutiny
Investor concerns dent sentiment
Market sentiment has weakened amid worries over opaque valuations and limited transparency in private credit markets, along with stress cases such as the bankruptcies of First Brands and Tricolor, where lenders had exposure, Reuters reported.
According to data from Moody’s, US banks had nearly $300 billion in loans outstanding to private-credit providers as of June 2025, along with $285 billion lent to private-equity funds and $340 billion in unused commitments, Reuters said.
Shares of alternative asset managers have also come under pressure this year, as concerns grow over software sector valuations and potential disruption from artificial intelligence, Reuters reported.
JPMorgan marks down loan values
JPMorgan Chase has reduced the value of some loans to private-credit funds after reviewing exposure to sectors such as software, Reuters reported, citing two people familiar with the matter.
The bank conducted a detailed review of its financing portfolio and adjusted valuations on certain loans based on underlying risks, one of the sources told Reuters.
The move, while not unprecedented, is typically undertaken during periods of market stress and will likely reduce lending to private-credit funds, Reuters said, citing a source familiar with the matter.
Morgan Stanley limits withdrawals
Morgan Stanley capped redemptions at one of its private-credit funds after investors sought to withdraw nearly 11% of shares outstanding, according to a regulatory filing cited by Reuters.
The bank’s North Haven Private Income Fund returned about $169 million, or 45.8% of investor requests, during the quarter.
In a letter to investors, the firm said the direct-lending market is facing challenges including uncertainty around M&A activity, declining asset yields and concerns over credit quality, Reuters reported.
BlackRock restricts investor redemptions
BlackRock restricted withdrawals from its HPS Corporate Lending Fund (HLEND) after receiving $1.2 billion in redemption requests, equivalent to about 9.3% of net asset value, Reuters reported.
The fund allowed withdrawals of $620 million, hitting its 5% quarterly cap, while citing the need to avoid a mismatch between investor liquidity and long-term loan assets.
Company documents show that about 19% of HLEND’s portfolio is tied to software investments, Reuters said.
Blackstone sees rising outflows
Blackstone reported a sharp increase in withdrawal requests from its flagship BCRED private-credit fund, allowing clients to withdraw $3.7 billion, Reuters reported.
After accounting for $2 billion in new commitments, net outflows stood at $1.7 billion.
The firm temporarily raised its redemption cap from 5% to 7% and injected $400 million alongside employees to meet investor withdrawals.
According to JPMorgan analysts cited by Reuters, this marked the first quarter of outflows for BCRED.
Blue Owl sells assets, halts redemptions
Blue Owl Capital said it is selling $1.4 billion in assets across three credit funds to return capital to investors and reduce debt, Reuters reported.
The firm also halted redemptions at one of its funds, while emphasizing it is adjusting how redemptions are processed rather than stopping them entirely.
The assets span 128 portfolio companies across 27 industries, with the largest exposure, about 13%, in the software and services sector, Reuters said.
Cliffwater caps investor withdrawals
Investors in Cliffwater LLC’s flagship private-credit fund sought to redeem about 14% of shares in the first quarter, prompting the firm to cap repurchases at 7%, Reuters reported, citing a report by Bloomberg News.
As an interval fund, Cliffwater is required to offer periodic liquidity, typically set at 5% per quarter, with flexibility to increase to 7%, the report said.
What happens next
Investors will closely watch whether stress in private credit markets deepens, particularly as concerns over AI-driven disruption, software sector exposure and liquidity risks continue to build.
Further tightening by banks and increased redemption pressure could shape the outlook for the broader credit market.
FAQs
Q1: Why is the private credit market under pressure?
Concerns over valuations, transparency and rising credit risks, along with high exposure to vulnerable sectors like software, have weakened investor confidence.
Q2: How are banks responding?
Banks such as JPMorgan are marking down loan values and tightening lending to private credit funds.
Q3: Why are funds restricting withdrawals?
Funds are limiting redemptions to avoid forced asset sales during market stress and manage liquidity mismatches.
Q4: What risks are investors watching?
Key risks include AI-driven disruption, credit deterioration, liquidity constraints and continued investor outflows.
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