Over the past two quarters, several large U.S. semi-liquid private credit funds capped withdrawals, returning only part of what investors asked for. For many clients, it was the first time they saw the words “private credit” next to the word “capped,” and for many advisors it prompted a familiar question: Could that happen to my fund?
That scrutiny is healthy, but the headlines need context. Much of the strain so far is about liquidity and expectations, even as credit stress rises in specific areas. For advisors, the role is to help clients understand that distinction clearly.
Private credit has grown into a meaningful part of global credit markets, with assets reaching roughly US$1.7 trillion and forecast to approach US$2.6 trillion by 2029, according to Preqin.
That growth reflects real demand, but it also means the details matter more, because private credit is not a single, uniform exposure. Strategies differ in who they lend to, the seniority of the loans and how easily investors can get their money back. In calm markets those differences are easy to overlook; in difficult ones, they separate the funds that hold up from the funds that do not.
That is what the recent headlines show. Redemption requests ran well above what these funds typically allow in a quarter, and most funds did what their terms always said they would: they paid out up to the limit and held the rest. The pressure is also uneven. Higher rates have made refinancing harder for weaker borrowers, and in some sectors like software, the prospect of AI disruption has raised fresh questions about whether borrowers can keep paying.
Credit stress is rising alongside that pressure. Fitch Ratings put the U.S. private credit default rate at a record 6% for the 12 months ended April 2026, a figure that counts negotiated restructurings and deferred interest alongside outright failures. But a headline rate says nothing about any individual fund. What matters is what a given manager owns and how carefully its loans were underwritten, which is exactly what broad conclusions about private credit tend to miss.
Structure and manager selection matter
Private credit does not behave like public fixed income. The loans are negotiated directly, held in less liquid vehicles and meant to be owned for years, so the fund structure has to reflect that. Redemption limits, notice periods and liquidity sleeves can feel restrictive, but they are not flaws. Matched to the assets underneath, they protect investors from being forced to sell at the wrong time.
The real test is whether the liquidity a fund offers lines up with how its loans can realistically be managed under stress. Critically, fund managers need to clearly explain how they plan to pace redemption demands with sources of liquidity to avoid mismatches that end up indefinitely shuttering the fund.
Credit quality, valuation and manager transparency are the next things to examine. Private credit, like public credit, spans a wide range of risk and potential outcomes. Some weak results will reflect borrower quality, leverage or inadequate protections rather than a broader issue across the asset class.
Advisors need enough transparency to assess that distinction: where loans sit in the capital structure, how borrowers are selected, what protections are in place and the manager’s track record for managing loans when borrower performance weakens. A private market allocation is only as strong as the platform and process behind it.
Private credit is also just one part of the broader private markets, alongside private equity, infrastructure and real estate. The wider case for these assets is access to companies and projects not available in public markets, which keep shrinking as more businesses stay private for longer. Used well, private markets complement public stocks and bonds rather than replace them, provided each allocation is sized deliberately and matched to the client’s time horizon.
For advisors, analysis starts with purpose, because an allocation intended to generate income should be judged differently from one intended to diversify exposure or support growth. From there, additional questions should follow. Do the terms suit that purpose? Is the manager disciplined enough to deliver it? And does the allocation fit the client’s time horizon, cash-flow needs and comfort with less frequent pricing?
Get those things right and the headlines lose their power to unsettle. When market stress emerges, a client who understands why they own what they own, and what its structure is built to do, is better positioned to see it as part of the investment experience rather than a surprise. That is the difference between owning private credit and merely holding it. It is where advisors earn their fees.
