Perspective on Risk — April 11, 2026 (Private Credit)

The redemption wave has arrived. The insiders are talking. And the architecture is doing exactly what I said it would do.

Three weeks ago, in the March 15 Perspective, I laid out five things to watch. Every one of them has moved.

Blue Owl’s OBDC II gate was the opening act. Since then, the redemption wave has broadened into something the industry can no longer dismiss as “idiosyncratic.” The marks are being challenged, from inside the industry, not just from skeptics. JPMorgan is trying to build secondary markets in assets that were never supposed to trade. And the insurance plumbing I’ve been tracking for eighteen months just got a new data point that should concern everyone.

Let me walk through what’s happened and what it means.

The Redemption Wave: From Trickle to Flood

In March, I wrote that “the retail channel is finally being asked to behave like the liability it actually is.” Three weeks later, the numbers make that look conservative.

The Wealthy Investors That Powered Private Credit Are Rushing for the Exits (WSJ) reports that billions in redemption requests hit funds in just the first quarter. Retail investors pull billions from private capital’s credit gold mine (FT) puts the number at $13 billion in withdrawal requests across more than a dozen funds in Q1 alone, with over $4.6 billion of investor capital now trapped behind withdrawal limits.

The fund-by-fund picture is striking. Natasha Sarin, the Yale Law professor and former Treasury official, compiled the comparison in This Is Starting to Look Like a Slow-Motion Bank Run (NYT):

• Blackstone BCRED ($82B): 7.9% redemptions, a record, equivalent to ~$3.8 billion. The fund’s first monthly loss in over three years (-0.4% in February). Blackstone staff opened their own wallets to offset. Jonathan Gray called it “noise.”

• Apollo: 11.2% redemption requests, capped at 5%.

• Ares: 11.6% requests at its flagship.

• BlackRock HPS: 9.3% requests.

• Blue Owl OCIC ($36B): 22% redemption requests, capped at 5%.

• Blue Owl tech fund ($6B): 41% withdrawal requests, capped at 5%.

That last number deserves a moment. Forty-one percent of a fund’s investors wanted out in a single quarter, as Blue Owl faces withdrawal flood as private credit jitters persist (Semafor) reported. Blue Owl told investors: “We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio.” Notably, the Semafor report found that large institutions, not just retail, drove the redemptions, with Asian family offices among the significant requestors.

And then there’s Cliffwater. Jonathan Weil at the WSJ went inside the $42 billion Cliffwater Corporate Lending Fund in Inside a $42 Billion Private-Credit Black Box: More Black Boxes and found what I’d call the platonic ideal of the opacity problem: over 3,600 individual holdings, including ownership stakes in other private credit funds. Black boxes inside black boxes. Reminds one of CDO-squared transactions, doesn’t it. Investors sought to redeem 14% of the fund; Cliffwater capped it at 7%. S&P subsequently cut the fund’s outlook to negative.

As Matt Levine observed in Money Stuff (Bloomberg), the average redemption request across larger non-traded BDCs was running at about 15%, three times the quarterly cap. The industry promised 5% quarterly liquidity. The investors want 15%. The math doesn’t work. As I wrote in March: the run is not just panic, it’s just math.

Sarin’s framing is worth engaging with. She argues these funds

operate like banks — lending long-term while relying on investor capital — yet lack deposit insurance protections.”

She references Bear Stearns in March 2008, when executives dismissed concerns before failure within days. I think the analogy is useful but overdone. The gating mechanism is specifically why this isn’t Bear Stearns; it converts a catastrophic overnight run into a slow, painful grind. That’s an improvement over pre-GFC architecture, even if it doesn’t feel like one to the investors behind the gate.

But here’s the part Sarin gets exactly right: the Trump administration’s push to put private credit into 401(k) plans changes the political calculus entirely.

When institutional investors lose money, it’s a business story. When 401(k) holders lose money, it’s a political one.

The Insiders Are Talking

The most significant development since my last piece isn’t a data point. It’s a quote.

Top Apollo Executive Sounds Off on ‘Arrogance’ in Private Markets (WSJ) reported that Apollo’s John Zito, co-president of its asset management arm, told UBS clients:

I literally think all the marks are wrong.

Zito predicted that a private credit loan to a “generic small or midsize company” might recover 20 to 40 cents on the dollar.¹ He called out “arrogance” among private market participants and warned that

people are way smarter than I think private-market participants, particularly people in the wealth channel [give them credit for.]

Read that again. An industry insider, at one of the largest alternative asset managers on Earth, is telling clients that the industry’s valuations are fiction.

Apollo subsequently said the comment was specifically about software companies. But the qualification actually makes it worse, not better, given how concentrated private credit’s exposure is to software and business services.

Meanwhile, Wall St underestimates private capital problems, says top credit hedge fund (FT) reported that Tony Yoseloff, the managing partner and CIO of Davidson Kempner ($38 billion AUM), stated that a “significant proportion” of companies in the private equity ecosystem are “under stress or in distress,” adding:

What you’re dealing with isn’t a problem five years out — it’s an issue that already exists today.

And the distressed vultures are circling. Distressed-debt funds target private credit downturn as ‘greatest opportunity’ since 2008 (FT) reported that Victor Khosla of Strategic Value Partners called this the “biggest opportunity since 2008,” while Andrew Milgram of Marblegate called it “the greatest opportunity I’ve ever seen.” Distressed and opportunistic credit funds have raised more than $100 billion over the past two years, ready to deploy into dislocated private credit at discounts reportedly in the 20-40% range.

When the people who make their living buying distressed assets start raising hundred-billion-dollar war chests to buy your loans, you are not in a “noise” situation.

The Academic Counterpoint

And Why It Actually Supports the Concern

Intellectual honesty requires engaging with the best counterargument. In March, Gregor Matvos, Tomasz Piskorski, and Amit Seru published Private Credit, Balance Sheets and Financial Stability (NBER Working Paper 34991), using comprehensive fund-level data to argue that

[private credit funds are] conservatively structured and unlikely to pose systemic risks comparable to traditional banks.

Their findings: private credit funds maintain equity levels of 65-80% of total assets, over six times bank capitalization. Debt usage is moderate, largely reflecting bank credit lines for liquidity management. Maturity mismatch is minimal. Fund lifespans average 10-12 years. Losses are primarily absorbed by equity investors rather than debt holders.

The leverage quoted is a bit of a canard; bank’s asset portfolios aren’t entirely loans. Bank “loan-to-equity’ leverage is about 5:1 compared to 2.25:1 at credit funds, and the bank loan portfolio is arguably higher quality.

Nevertheless, this is a serious paper, and the core finding is important: the funds themselves, viewed in isolation, are not leveraged like banks.

But the paper’s own list of “emerging vulnerabilities” is where the action is: governance and disclosure gaps, stress-period dynamics, bank-nonbank linkages, and, crucially, “loss transmission through limited partner balance sheets and retail vehicles.” That’s not a footnote. That’s the whole story. The systemic risk in private credit was never inside the funds. It’s in the plumbing around them: the bank credit lines, the insurance balance sheets, the retail wrappers, and the opacity that ties them together.

Matvos, Piskorski, and Seru are right that a well-capitalized closed-end fund with 10-year lockups is structurally sounder structure. The problem is that the industry built a $3 trillion edifice on top of that sound foundation and then promised retail investors quarterly liquidity at par.

JPMorgan: From Gatekeeper to Market-Maker

In March, I wrote about JPMorgan marking down software loan collateral, an outlier because it “reserves the right to revalue assets at any time” while most other banks contractually constrained themselves.

Now JPM has taken the next step. JP Morgan attempts to make markets on private credit secondaries amid software selloff (9fin) reports that JPMorgan is attempting to build secondary trading in private credit paper. Think about what that means: the bank that tightened the lending is now trying to create price discovery in an asset class whose entire value proposition was built on not having price discovery.

This is the “intentional opacity” thesis I laid out in June 2025, drawing on Gorton, Li, and Ordoñez, coming full circle. They argued that information-insensitive debt achieves highest capacity when price discovery is costly; that opacity is a feature, not a bug. The sponsors who put JPMorgan in the “penalty box” for quoting paper were enforcing that logic.

Now the stress is forcing transparency. And the question is what happens when assets that were designed to be opaque are suddenly forced to have observable prices. The answer, as any student of the GFC knows, is that observable prices tend to be lower than the marks.

The Blowup That Exposed How America’s Banks Are Entangled in Private Credit (WSJ) provided a concrete case study of what this looks like in practice: a dispute between Western Alliance and Jefferies that exposed the funding plumbing under stress. Banks don’t just lend to private credit funds; they lend against private credit collateral, and when that collateral gets repriced, the whole chain tightens. This is the “Great Retranching” I’ve been describing since my earliest posts: banks moved up the capital structure, becoming senior lenders to the very NBFIs that replaced them. The credit risk didn’t leave the banking system. It was transformed into senior exposure to nonbanks.

The Insurance Layer: Athene and the Taxpayer Subsidy

I’ve tracked the insurance-private credit nexus extensively; the Apollo/Athene model, the trapped capital story, the private letter ratings, the leverage that reaches 12:1 on a consolidated basis.

Apollo’s Insurance Arm Rises to Second-Biggest FHLB Borrower (Bloomberg) adds a dimension I hadn’t fully explored. Athene now owes the Federal Home Loan Bank system $23.3 billion, up 49% from $15.6 billion a year earlier, making it the second-largest FHLB borrower in the entire system, behind only Truist Financial and ahead of every major US bank.

Athene describes this as an “investment spread strategy”: borrow at FHLB rates, invest at higher rates, pocket the spread.

The FHLB system was created to support housing finance. It receives an estimated $6.9 billion annual government subsidy. That subsidy is now being used to fund a PE firm’s spread trade through an insurance subsidiary investing in private credit.

Phil Bak, in The PE Sausage Factory, put it colorfully: the PE-insurance-private credit arrangement is “like having a slaughterhouse own a sausage factory,” and the policyholders bear the credit risk while the PE firm collects origination fees. That’s the conflict. What the FHLB data adds is the taxpayer subsidy dimension: it’s a slaughterhouse that owns a sausage factory that runs on government-subsidized electricity.

The Audit Gap

One thread I haven’t pulled hard enough in prior posts: who audits the auditors?

KPMG Faces Allegations of Blown Audit in Private Credit Collapse (Bloomberg) reports that the Ontario Securities Commission alleges KPMG “failed to perform fundamental audit procedures over the most critical aspect of the financial statements — the valuation of the loans held within each of the funds” at Bridging Finance, a Canadian private debt manager.

Bridging Finance managed $2.09 billion at its peak. After the court-appointed receiver (PwC) dug into the books, it estimated investors would lose $1.3 billion — nearly two-thirds of assets under management. PwC is now suing KPMG for $1.4 billion. The OSC is seeking up to $40 million in penalties.

The details matter: when KPMG found loans that were overstated, it “wrongly assumed the findings were isolated to those loans.” That’s not a rounding error. That’s an auditor failing to apply the most basic principle of audit sampling — that material exceptions in a sample imply material exceptions in the population.

Private credit’s entire valuation chain depends on a series of trust points: the manager marks the assets, a third-party valuation agent reviews, and an auditor signs off. Bridging Finance shows what happens when that chain fails. And the structural incentives, fee-based valuation agents hired by the managers they evaluate, auditors competing for clients, create the same adverse selection dynamics I’ve described in the private letter ratings context.

And amidst this, the Trump administration is gutting the PCAOB.

Europe: Not Bankrupt, Just Restructured

European private credit borrowers don’t go bankrupt (FT Alphaville) adds useful geographic texture to the default definition story. Research covering 150 European companies representing approximately $38 billion of aggregate LBO financing found that since 2017, only four resulted in actual bankruptcies or liquidations. The rest were debt-for-equity swaps.

This is the European version of what I described in August 2025: private credit default rates rely on narrow definitions that exclude PIK conversions, maturity extensions, and amend-and-extends. The European data makes it even cleaner. The borrowers don’t go bankrupt, they just get restructured in ways that shift value from lenders to sponsors while keeping the technical default rate low.

The Mainstreaming of the Story

One final observation. Paul Krugman — a Nobel laureate writing for a general audience — published Private Credit and the New World of Financial Risk on April 5. It opens: “There’s a whiff of 2008 in the air.” He covers shadow banking growth, the Dimon “cockroach” quote, and the parallels to pre-crisis deregulation.

There is nothing in Krugman’s piece that readers of this newsletter haven’t seen. That’s the point. When a story migrates from specialized financial analysis to Nobel laureates writing for general audiences, it means the Overton window has shifted. The FT’s Private capital: what are the risks? notes that the “$22 trillion industry rejects comparisons with 2008. Regulators aren’t so sure.”

Private credit risk is no longer an insider conversation. It’s a public one.

What I Think

My view hasn’t fundamentally changed, but it has sharpened.

The good news: The Matvos/Piskorski/Seru paper is right that the core private credit funds are well-capitalized relative to banks. The gating mechanism is working as designed, converting what would have been overnight runs into managed outflows. Core banks remain well-capitalized. The system is not experiencing a 2008-style liquidity crisis.

The bad news: Everything happening is consistent with the late-cycle Minsky framework I laid out in November 2025. The insiders are talking (Zito, Yoseloff). The vultures are raising capital (Khosla, Milgram). The marks are being challenged. The retail channel is discovering that “quarterly liquidity” was contingent. The insurance plumbing is growing more leveraged, more subsidized, and more opaque. The audit infrastructure is failing in at least one documented case. And the regulatory apparatus that might have caught some of this earlier has been systematically dismantled.

The configuration right now: tighter exits, challenged marks, more internal recycling, insurance backstops running on government subsidies, an audit chain with documented failures, and $100 billion in distressed capital waiting to buy at 60-80 cents.

We still aren’t “in crisis.” But we are deeper into the reveal than we were three weeks ago.

What I’m Watching Next

1. Q2 redemption data. If requests stay above 15% while caps hold at 5%, the queue grows. Eventually the queue is the signal.

2. JPMorgan secondary market activity. If JPM succeeds in creating observable prices for private credit, it could trigger the marking chain I described: observable prices force marks, marks force redemptions, redemptions force sales. The fire-sale externality, in slow motion.

3. FHLB scrutiny. Athene at $23.3 billion and growing, a PE-affiliated insurer as the second-largest borrower in a government-sponsored system designed for housing finance. This is going to attract political attention.

4. More audit revelations. Bridging Finance may be Canadian and relatively small. But the structural incentives — manager-selected auditors, fee-based valuation agents — are identical in US private credit. The question is whether the US audit infrastructure is being tested as rigorously.

5. Insurance balance sheets under Q1 marks. If private credit marks come down, the PE-affiliated insurers holding concentrated positions will face capital implications. Watch the statutory filings.

6. The first forced seller. Someone with too much private credit exposure will need to raise liquidity by selling liquid assets. If it’s large enough, it moves Treasury or corporate bond markets. That’s the contagion channel.

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We aren’t in crisis. The core banking system is well-capitalized. But the system is doing what it always does late in the cycle: revealing which promises were real, and which were contingent. The pace of that reveal has accelerated considerably in three weeks.

1. I’d note that this shouldn’t be a surprise if one has read Til Schuermann’s What Do We Know About Loss Given Default?