What is private credit?

Established private credit funds are seeing redemption requests consistently in the teens percentage, repeatedly hitting the 5 percent quarterly gate.

“We've seen that even some of these wellestablished funds are seeing their redemption rates go up quarter over quarter. we're going to see that 5% rate hold. This is structured to not go above the 5% gate, but it is very real and very concerning that you're seeing consistent teens level redemption requests.”

The private credit bear case: redemptions trigger defaults, defaults force selling, forced selling exhausts interval fund liquidity, and gating follows, creating a self-reinforcing liquidity crisis.

“The bear case, which I'm not saying it's going to happen, but what happens is you get redemptions, you get some real defaults, you get for selling of private credit. And in the interval funds, you just run out of what's liquid, and the bar to gate is really high.”

ARR loans to negative-EBITDA companies with no warrants, once considered absurd, have become standard practice in private credit markets.

“You would have gotten laughed out a bit that you're lending to a company that has negative EBITDA and you're not getting any warrants.”

Data center financing check sizes are too large for most credit funds to syndicate across a diversified portfolio, leaving only mega-managers like Apollo able to participate.

“The check size is just so big that for credit where you need to have a lot more bets in a fund. it's really hard to be able to participate unless you are the Apollos of the world in a lot of this data center financing.”

Russell Clark explains why private equity and private credit are the most rate-sensitive sector: their entire business model was constructed around a regime of ever-falling interest rates, making a return to sub-3% yields an existential hope rather than a base case.

“I think they are, of all the sort of businesses I look at, they're the ones most hopeful that the Fed comes in and cuts rates back to zero and bond yields fall back to sub 3% or something like that because they've built their whole model about ever lower interest rates. which they're not getting.”

Private credit compensation is expected to peak and then lag private equity compensation by 12 to 18 months, reflecting a structural slowdown spreading from PE to credit with a delay.

“There's that worry there on the on the private credit side, which I think is like a 12 to 18month lag from a lot of these PE folks.”

Tom Shapiro on the inevitable failure of production-driven capital deployment in private credit.

“When you have a ton of capital come in, you mentioned private credit, that's what happens, right? when people get paid for production like they did in private credit and start pushing you know huge amounts of money out that's never a good thing and never ends well.”

Kieran Goodwin predicts a wave of defaults specifically in the software sector, a segment private credit lenders have leaned into heavily.

“We're going to have a wave of defaults in the software space.”

Retail investors burned by private credit liquidity gates are unlikely to return to the asset class, undermining the industry's retail-democratization thesis.

“I think retail is the big piece of the puzzle here where a lot of them, if they don't know what they're doing, shouldn't be involved in the market, and I don't think they'll necessarily come back.”

The crisis mechanism: illiquid private credit and insurance assets cannot be sold under stress, forcing holders to liquidate high-yield debt instead, spreading contagion into public credit markets.

“It's not going to be a collateral crisis where because that's tight, people have to sell everything. I think it's going to be people are gonna sell everything because it's a credit crisis and you're going to be looking in order to fund because you can't sell the liquid stuff. You're going to sell high yield debt.”