US retail investors submitted more than $20bn in repurchase requests to private credit vehicles over two consecutive quarters, according to Stephen Deane, moderator on the panel and senior director of capital markets policy at CFA Institute.

With less than 40% of these requests met, over $12bn of the requests went unfulfilled because of the vehicles’ repurchase limits in an asset class often marketed to retail investors as a stable alternative to public market volatility.

Panellists participating in a CFA Institute webinar on 22 July 2026 disagreed over whether the industry is undergoing a healthy reset or approaching a late-cycle reckoning.

A reset of discipline or a speculative trap

Matthias Meitner, managing partner of Germany-based Valuesque, argued that a “reset” is indeed underway, moving away from the excessively “credit-friendly” years of 2021 to early 2024. He pointed to tighter documentation, more robust covenants, and the death of the “zero loss fantasy” as signs of a maturing market.

Mike Dowdall, CEO and portfolio manager at Alternative Fund Advisors, agreed, noting that greater dispersion was emerging across managers and borrowers as investors reassessed exposures following years of rapid growth and low defaults.

However, financial historian Mark Higgins viewed this through a darker lens, describing the current infatuation with private credit as a classic “late-stage herd-driven cycle” reminiscent of 19th-century railroads or investment companies in the 1920s.

Higgins, a senior vice president at institutional Investor warned that financial intermediaries are now so wrapped up in the “speculative supply chain” that they are incentivised to keep capital flowing even as underwriting standards erode. In this view, the current friction is not “growing pains for some new marvel of financial engineering.” Rather, he argued, it reflects the emergence of systemic vulnerabilities produced by familiar patterns in a slightly different guise.

The liquidity mismatch and the risk of a run

The terminology used to describe investor withdrawals has become a point of contention among industry leaders. Tom Selman rejected the term “gating,” preferring to see repurchase caps as a mechanism for “orderly limited liquidity.”

Selman argued that these vehicles involve two long-term owners: the investor, who is expected to retain their interest over the long term, and the fund vehicle, which serves as the long-term holder of the private credit assets.

Others are far blunter. “Every time you pair long-duration assets with a promise of periodic liquidity without a lender of last resort, like the Fed,” Higgins said, “you are asking for trouble.” He characterised the current dynamic as a classic “financial run”, resembling the run dynamics observed during the 2007–09 global financial crisis. The danger is that once confidence is lost, investors base their decisions not on the merits of the underlying loans, but on whether they can exit before they are “stuck holding the bag.”

Private credit reckons with loose standards

A flood of capital from insurance companies and retail wealth has led to an oversupply of credit, creating a “race to the bottom” in recent years. Dowdall admitted that in the rush to deploy capital between 2020 and 2022, some managers experienced “strategy drift” and a relaxation of standards to avoid the “cash drag” of undeployed capital.

He noted that significant capital flowed into private credit to finance private equity. The consequences are now emerging in parts of the private credit market through weaker borrower performance and rising credit stress.

PIK rise signals mostly hidden credit stress

This stress is now surfacing in the “plumbing” of the market through the rise of “payment-in-kind” (PIK) structures. Payment-in-kind interest allows borrowers to add interest to the outstanding principal instead of paying it in cash, postponing the immediate burden but increasing the amount ultimately owed. PIK interest accounted for 8.9% of interest income in the measured portfolio or dataset, up from 4.3% in 2023, according to figures cited by Deane.

While “good PIK” can support value-creating projects like real estate development, argued Dowdall, “bad PIK” in struggling software companies is often a red flag for hidden stress that is not yet reflected in official valuations.

Higher rates cut both ways

Although floating-rate loans produce more income for investors as benchmark rates rise, higher debt-service costs can weaken borrowers’ interest coverage and increase default risk. Higher discount rates may also reduce enterprise-value multiples and collateral cushions.

From gradual deterioration to sudden stress

Deane invoked Ernest Hemingway’s description of bankruptcy occurring “gradually and then suddenly.” He warned that deterioration is rarely obvious until the “wheels start coming off,” citing the rapid collapse of Lehman Brothers as an example of how misvalued assets can trigger a sudden panic.

If valuation smoothing in parts of the private credit market is masking economic deterioration, the shift from a gradual slowdown to a crisis could be swift. Further, Meitner stressed that default risk is the hardest parameter to value accurately, particularly when the past is no longer representative of the future.

The case for public-market alternatives

Amid the hype around private markets and credit, Higgins argued that investors overlook a proven alternative: diversified, publicly traded index funds with low fees and disciplined rebalancing. He said some pension funds, such as in Nevada, had outperformed their peers on that basis.

Higgins argued that investors should demand compelling evidence of added value before allocating to costly and illiquid assets, particularly when valuations are uncertain and he sees signs of a late-stage cycle. “On average, I haven’t seen any evidence to date that makes a compelling case.”