The rapid growth of the $2tn US private credit market is drawing renewed scrutiny as redemption pressures expose potential liquidity mismatches in open-end lending vehicles. Much of the growth in this sector over the last decade has been driven by the financing of the technology industry, particularly software companies, data and compute centres.
Many private credit funds reportedly maintain tech exposure of 20% to 30% in the US. This concentration has raised concerns both about fund performance and the risk that a slowdown in private credit financing could weigh on the broader technology sector and economic growth.
A focal point of current anxiety is the “redemption crisis” observed in certain US funds, notably exemplified by Blue Owl. After changing its redemption management approach several times, Blue Owl reportedly received redemption requests exceeding 40% of the assets in its Technology Income funds. This has reignited fears of contagion among similar vehicles, particularly non-listed business development companies (BDCs) and evergreen funds targeting retail investors.
JPMorgan downplays systemic private credit risk
Lilia Peytavin, global market strategist at J.P. Morgan Asset Management noted that BDCs are primarily exposed to 20% (around $200bn) of the total direct lending, which itself accounts for only half of the total US private credit market ($2trn). She argued that there is enough dry powder in the private credit market to limit possible contagion effects.
Despite these concerns, Peytavin noted that her firm’s analysts suggest the risks remain contained. Although default rates have risen slightly, they remain “relatively low,” while the percentage of companies under financial difficulties opting for “payment-in-kind” (non-cash interest settled in additional securities) remains stable, suggesting distressed restructurings and debt-to-equity conversions have not accelerated materially.
Furthermore, from a macro perspective, Peytavin stressed that private debt represents only about 4% of total credit provided to households and businesses, a stark contrast to the 45% share held by residential mortgages prior to the 2007 financial crisis. Consequently, she is not convinced the market poses a broader financial stability threat, a view also shared by Dzemal Tomic, senior vice president & head of institutional banking at Spuerkeess.
European banks shielded from private debt
Concerns also appear relatively contained in Europe, where the structure of the private debt market differs significantly from the US. For instance, Tomic stressed that Spuerkeess primarily provides “equity bridge financing,” namely credit lines secured against the uncalled commitments of institutional investors at the start of a fund’s life.
While NAV financing exists (borrowed money secured against the value of the existing investment portfolios in a private asset fund), he argued that it is typically used in Europe for managing investment mismatches in closed-end funds rather than funding redemptions in open-end structures. However, he did not rule out European investment banks participating in redemption financing.
