By Tim Courtney, Chief Investment Officer
Earlier this year, investors began seeing near-daily stories about problems in the private credit market. This market is primarily made up of loans to smaller and mid-sized companies that aren’t able to borrow through traditional bonds, usually have weaker credit profiles, and therefore must pay higher rates on borrowed money.
Concerns began growing last year when a large private credit fund adjusted its valuation downward after recognizing issues within its portfolio.¹ Because private credit investments are not priced daily like publicly traded securities, valuation changes can occur in discrete and immediate adjustments which can rattle investors that may have become used to prices that move very little over the course of several quarters.
Following this, the rapid development of AI led to questions about the outlook for certain software companies. This became relevant because a meaningful portion of this market is lending to software developers Many private credit funds have exposure of 10% to 20% in software lending.² Because of this, investors began to consider the potential for higher default rates.³
There are several good lessons to be learned from these current events, starting with how quickly things can change. Private credit had been bringing in large amounts of deposits over the last several years. But this changed quickly in 2026 as funds received tens of billions of dollars in withdrawal requests.⁴ When some of the funds were only able to fulfill a pro-rata portion of those withdrawals (which is normal when withdraw requests are high in a particular quarter), media coverage increased which in turn contributed to additional redemption requests in something similar to a run on the bank.
Secondly, there is always risk inherent with investing in any asset class. This asset class expanded significantly over the past decade, reaching more than $1.5 trillion globally as private markets have matured and technology improved.⁵ But many of the newer investors hadn’t experienced any distress in private credit – only steady gains in the high single to low double digits – and hadn’t considered that these kinds of returns must necessarily come with risk. Returns don’t come for free but are earned in times like these.
Finally, this episode highlights the importance of understanding what we own and why we own it. Private credit has grown to be a meaningful part of debt markets, has offered a reasonable expected return to compensate for its risks, and so is a valid, diversifying asset class for investors to consider. A disciplined investor will recognize this and plan to hold this type of investment for many years to more reliably capture the returns available in the space. Chasing a popular asset only to leave in search of the next popular asset has often led to investor outcomes that are much less reliable. As always, a tool’s effectiveness is determined by how well it is utilized by the user.
Sources
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