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One after another, private credit funds are reporting that customers are trying to whip out their money. Is it the beginning of a financial crisis? One way to answer that is to look at the last time finance diced with disaster: the panic around US midsized banks in 2023. There are common features, and some reassuring differences.
Financial crises typically have two main features: runs, and contagion. The 2023 mini-crisis started with a run. Tech lender Silicon Valley Bank was confronted with an online mob of depositors trying to get their cash back over fears its bond holdings had fallen in value. Regulators were forced to take the bank over.
Private credit needn’t worry about a chaotic customer-led unwinding. Funds such as Blue Owl Capital Corp II, Cliffwater’s Corporate Lending Fund and Morgan Stanley’s North Haven Private Income Fund come with limits on how much clients can pull out in a given period. They are designed expressly to pre-empt an arterial haemorrhage.
Contagion, though, is a risk — and is already happening. Back in 2023, investors and depositors started to zoom in on other banks that vaguely resembled SVB, and then shifted focus to those with large amounts of commercial real estate lending. More lenders failed.
In private credit too, investors are nervously scanning for funds similar to those facing withdrawal requests. The “gates” that prevent runs may, perversely, speed contagion. As former Pimco chief Mohamed El-Erian said this week, “If you can’t sell what you want, you sell what you can”. Quotas on redemptions incentivise investors to ask for more than they want.
Since gated funds are built to buckle but not break, even this creeping fear poses little threat of systemic mayhem. But it may lead investors to shun private credit more broadly and starve some borrowers of their financial lifeblood. Software companies, for example, need to refinance $40bn of debt in 2028, economists at Apollo Global Management warn. Non-bank lending is a growth engine for midsized companies; if it slows, so do they.
The other potential danger is financial institutions ending up with losses if credit funds’ assets fall in value. Truist Securities analysts reckon 10 per cent of loans at banks they cover were to “non-depository financial institutions” at the end of 2025. Some insurers, who hold large amounts of private credit as long-term investments, may also find their balance sheets filled with holes.
Ultimately both private credit and 2023’s crisis start from the same place: the worry that valuations shown on balance sheets don’t match reality. Banks restored confidence by being more transparent about their exposure to the riskiest kinds of debt, such as loans to office buildings. Falling interest rates helped calm nerves too. The share of commercial property loans written off by US banks peaked at less than 0.3 per cent in mid-2024.
It’s harder to see private credit having such a happy ending. For those whose assets are solid, sunlight might help. Some vehicles give line-by-line detail, whereas others are more vague. Apollo says it wants to update the value of private credit holdings daily, though doesn’t yet do so. If some funds start selling loans at cut prices, transparency will come the hard way. JPMorgan has already marked down holdings of some private lenders it counts as clients.
That might be the biggest difference between then and now. Banks’ main challenge in 2023 was to convince investors their assets were fairly valued. Private credit funds’ looming task is to admit that they’re not.