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Private credit is under pressure from borrower stress, redemption requests at some semi-liquid funds and investor concern about AI’s potential impact on software companies. Those are meaningful risks, but they do not prove an industry-wide collapse: the Federal Reserve described near-term financial-stability risks from redemptions as limited and manageable, while warning that sustained pressure could make credit harder to obtain for riskier borrowers.
What does “private credit under pressure” mean?
Private credit generally refers to loans originated by nonbanks and negotiated directly with borrowers. It is not one fund type, one set of withdrawal rules or one uniform measure of borrower distress.
The Federal Reserve estimated U.S. private-credit loans at about $1.4 trillion, equal to 10 percent of U.S. nonfinancial corporate debt, using data from the second half of 2025. The International Monetary Fund put the global direct-lending universe at about $2 trillion in its April 2026 briefing. These estimates cover different geographies and categories, so they should not be added together or treated as competing estimates of the same market. Federal Reserve, May 2026; IMF, April 15, 2026
The latest official material cited here covers developments through the first quarter of 2026; some of the Federal Reserve’s market data run through the second half of 2025. It does not establish what happened to defaults or redemption outcomes after Q1 2026.
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Are private-credit defaults rising?
The IMF’s April 2026 briefing described current direct-lending default rates as “perhaps between 2 to 3 percent.” It also said rates could reach “4, 5, or 6 percent” under adverse scenarios. That higher range is a stress scenario, not the IMF’s base-case forecast. IMF briefing transcript, April 15, 2026
Default statistics can also count different events. The IMF’s April 2026 chapter presents selective defaults and payment defaults as separate series. A restructuring or other selective default is not the same measure as a missed payment; figures should not be combined without checking what each series counts. IMF, Global Financial Stability Report, April 2026, Chapter 1
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Can investors get their money out of a private-credit fund?
It depends on the vehicle’s contract. A redemption request is not necessarily accepted, and an accepted request is not necessarily paid in full. Private-credit funds can be closed-end or semi-liquid, with materially different terms.
| Structure | Typical withdrawal or repurchase terms described by the Federal Reserve |
|---|---|
| Traditional private debt fund | Commonly locks up capital and offers no routine redemption. |
| Perpetual-life BDC | Generally offers quarterly tenders, subject to manager discretion and disclosed limits. Most disclosed a quarterly cap of 5 percent of net asset value (NAV). |
| Interval fund | Makes periodic repurchase offers and must offer to repurchase at least 5 percent of shares in each interval. |
These terms are not interchangeable. In particular, the interval-fund requirement refers to an offer to repurchase a minimum share of fund shares; it is not the same as a perpetual BDC’s commonly disclosed cap measured against NAV. Read the specific fund’s offering documents for its schedule, limits and discretion. Federal Reserve, Financial Stability Report, May 2026
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The Federal Reserve reported that requests at perpetual BDCs rose from comparatively low levels in Q4 2025 and accelerated in Q1 2026. Some requests substantially exceeded 5 percent of NAV, but most managers capped redemptions at that level. Accepted requests modestly exceeded new inflows for the first time since these vehicles were created. That sequence matters: a request can exceed the cap, while the amount accepted and ultimately paid can be lower.
The report also said the ten largest perpetual BDCs had cash and available bank credit sufficient to cover at least three quarters of net redemptions at the 5 percent level. Managers could decline redemptions if they judged that refusal to be in the fund’s best interest. These observations describe those large vehicles and the report’s stated conditions, not a guarantee that every investor can withdraw on demand.
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What does a gate or cap mean for an investor?
A cap or gate can limit the amount investors withdraw during a period and help a fund manage liquidity. The trade-off is that an investor may not be able to exit on the preferred timetable, even when a request has been submitted. The IMF said gates had contained redemption risk to date, while warning that systemic risk would rise if a larger share of the market became redeemable. IMF briefing transcript, April 15, 2026
Could AI disrupt software companies that borrowed from private-credit funds?
AI is a forward-looking risk to some borrowers’ earnings and refinancing prospects, not an established cause of a broad wave of realized private-credit defaults. The Federal Reserve said software had become the largest sector in private-credit portfolios, in part after elevated private-equity activity, and noted weaker investor sentiment amid concern about AI disruption. The IMF also flagged AI-related disruption concerns and refinancing risk for some software borrowers. Federal Reserve, May 2026; IMF, April 2026, Chapter 1
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The mechanism is straightforward but uncertain: if AI weakens a company’s competitive position or expected earnings, lenders and investors may reassess its valuation, ability to repay and chance of refinancing. The official sources establish that this concern affected sentiment; they do not establish that AI has already driven industry-wide default increases.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Could redemption pressure threaten the wider financial system?
Fund liquidity stress and systemic risk are separate questions. The Federal Reserve’s May 2026 Financial Stability Report judged near-term financial-stability risks from further redemption requests to be limited and manageable. It nevertheless warned that persistent withdrawals and negative sentiment could reduce credit availability for riskier borrowers. In other words, a fund may be able to contain withdrawals while businesses that rely on this lending face more costly or less available financing. Federal Reserve, Financial Stability Report, May 2026
Why banks still matter
Private credit’s growth has coincided with a shift in corporate lending toward nonbanks. Federal Reserve Vice Chair for Supervision Michelle W. Bowman said the bank share of corporate lending fell from 48 percent in 2015 to 29 percent in 2025. She also noted that banks lend to private-credit vehicles and that nonbanks can serve borrowers banks may not serve as readily. Bowman, “Speech on the Migration of Corporate Lending,” May 8, 2026
The Federal Reserve’s report said bank commitments and outstanding lending to private-credit funds and BDCs increased through Q4 2025, even as some commitments changed. Private credit therefore operates outside traditional bank lending in important ways, but it is not wholly separate from banks.
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What should an investor check before relying on a withdrawal feature?
- Identify the vehicle: a closed-end private debt fund, perpetual-life BDC and interval fund can have different liquidity terms.
- Check the actual tender or repurchase schedule, the cap and the basis used to calculate it, such as NAV or shares.
- Find out whether the manager can limit or refuse requests, and whether a request, an accepted amount and a completed payment are treated separately in the documents.
- Assess whether you could tolerate delayed or partial access to your investment; a semi-liquid feature is not equivalent to an on-demand withdrawal account.
These checks concern the fund’s stated terms, not a prediction of future redemption availability. The sources reviewed here do not establish post-Q1 2026 default or redemption developments.
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