To read the financial press right now, you would be forgiven for concluding that private credit — one of Wall Street's great growth stories of the past two decades — is coming apart at the seams. The names making headlines are the biggest in the business: Apollo, Ares, Morgan Stanley and Blue Owl. One by one, they have moved to cap withdrawals from their private credit funds as retail investors scramble for the exits. 

And yet, somewhere on the other side of this story, institutional investors — insurers, pension funds, endowments — are quietly doing something quite different. They are buying.

I have spent years advising institutional investors on private credit strategy, watching this asset class grow from a niche institutional product into a nearly $2 trillion market that now reaches into retail brokerage accounts, 401(k) platforms, and wealth management portfolios. And I have a pointed message for anyone viewing the current wave of negative headlines as a verdict on private credit itself: you are conflating two very different stories.

A Market Built for Patience

To understand why the current turbulence is less catastrophic than it appears and why it was, in some respects, entirely predictable, it helps to understand what private credit actually is and who it was designed to serve.

Private credit consists of bespoke, illiquid loans made directly to borrowers, typically middle-market companies outside of the traditional banking system. These loans are not traded on exchanges and cannot be partially liquidated. They are long in duration, customized in structure, and designed to be held to maturity. They generate returns that have consistently outpaced public fixed income markets, and they do so precisely because investors accept illiquidity as a condition of participation.

For the investors private credit was built for — insurers with long-dated liabilities, pension funds managing 30-year obligations, endowments compounding across generations — these characteristics are features, not drawbacks. A university endowment does not lie awake worrying about whether it can redeem its private credit allocation next Tuesday. It is thinking about what its portfolio will look like in a decade or longer.

Today’s problems began when the industry decided to open this institutional-grade product to a fundamentally different kind of investor.

The Democratization Dilemma

Over the past five years, the private credit industry recognized that institutional capital was largely allocated and began aggressively courting retail investors, wealth managers, and family offices. Semi-liquid vehicles, typically capping redemptions at 5% to 7% of net asset value per quarter, were engineered to bridge the gap between the illiquid nature of the underlying assets and the liquidity expectations of retail capital.

For a while, it worked. Inflows were strong, returns were solid, and the quarterly redemption windows rarely came under pressure. The structure appeared to function. What it had not been tested against, however, was fear.

When markets turned volatile, rattled by tariff uncertainty, AI-driven disruption fears, and broader macroeconomic anxiety, retail investors did what retail investors have always done throughout the history of public markets — they reached for the exit. 

Redemption requests surged. Funds that had comfortably managed outflows within their quarterly caps suddenly faced requests running at 10%, 12%, even 15% of net assets. The structural mismatch, always latent, became impossible to ignore.

The retail investor, when spooked or facing personal financial pressure, needs to be able to withdraw capital. But here is the fundamental reality of what we are dealing with and I’ll illustrate it with this example: I cannot sell a portion of a loan any more than I can sell a portion of a mortgage. It is either the whole loan that I own, or no loan at all. 

If that loan continues to perform and there is nothing fundamentally wrong with it, why would I want to liquidate it simply because a segment of my investor base has been rattled by headlines?

That tension is at the heart of everything we are seeing right now, and it’s being badly misread.

What the Headlines Are Getting Wrong

The dominant media framing — that private credit is in crisis, that redemption gates signal systemic failure — conflates isolated structural stress with broad asset class dysfunction. 

Consider a major asset manager running dozens of private credit funds, for example. Two of those funds, both oriented towards retail investors, have moved to limit redemptions. The rest continue to operate without restriction, generating returns in line with investor expectations. The underlying loans in those two funds continue to perform. Borrowers continue to meet their obligations — no one is going under.

That framing is the equivalent of declaring that U.S. real estate is in crisis because one city is experiencing a local market correction. While this is technically grounded in fact, it’s fundamentally misleading.

When Apollo's president recently acknowledged at an industry conference that certain distribution channels may not have fully communicated the liquidity restrictions inherent to these products, he was describing something important. But note what he was identifying: a distribution, communication and investor education failure. Not a failure of the underlying asset class. 

That distinction matters enormously, and it is one the broader financial press has been consistently slow to make.

The reality is that private credit cannot be discussed as a monolith. Senior secured direct lending, mezzanine debt, infrastructure finance, and software-focused middle-market lending are not the same product and do not carry the same risk profile. The current coverage paints them all with the same alarming brush. 

Who Is Actually Buying Right Now

Here is the detail that the redemption crisis narrative almost misses and one I find most instructive: while retail investors have been heading for the door, institutional investors have been walking through it.

When fund managers moved to accommodate retail redemption requests, they did so by selling performing loans into the secondary market to generate liquidity. Those loans did not sit unclaimed. Institutional buyers — insurers in particular — were waiting. They acquired high-quality, performing private credit assets at a modest discount. 

Retail investors, spooked by volatility and negative headlines, effectively transferred ownership of high-performing assets to institutional investors at a discount. The institutional investors understood exactly what they were buying. They knew the loans were sound and the discount was structural, and they acted accordingly.

We see this dynamic reflected directly in our client data at Clearwater Analytics. Despite the relentless negative press cycle, our institutional clients continue to increase their allocations to private credit, not just in straightforward direct lending, but in more complex, longer-duration structures. 

There is currently no data to support the narrative that private credit as an asset class is in a bubble or approaching systemic collapse. The assets continue to perform and borrowers continue to meet their loan obligations. What we’re witnessing is the anatomy of an asset class finding its footing after its first real liquidity test at scale.

The Real Reckoning and What Comes Next

Default rates are rising from historically suppressed levels, and a normalization; however, painful in spots, is both overdue and ultimately healthy for the long-term integrity of the market. 

Concentration in AI-vulnerable software names warrants genuine scrutiny. The feedback loop risk, where redemption gates deter new subscriptions and amplify outflow pressure, is real and demands thoughtful management from fund managers and regulators alike.

But the deeper issue is one our industry needs to confront honestly. We took an asset class built for patient, sophisticated, long-horizon institutional capital and sold it, at scale, to investors who are structurally and psychologically unsuited for illiquidity. The mismatch was always there. Volatility simply made it visible.

Semi-liquid is not liquid. A quarterly redemption window is not a bank account.

The story unfolding right now is not one story — it is two.

On one side, retail investors are experiencing real pain, not because the assets are failing, but because the products were not properly explained for their needs — and because short-term fear is a powerful and indiscriminate force. 

On the other side, institutional investors are looking at this exact moment and seeing what they have always seen: a well-performing asset class experiencing temporary structural noise, with attractive opportunities emerging as a result.

What one perceives as a crisis, the other perceives as a normal course of business. It is a tale of two cities, and understanding which city you are in may be the most important investment question in private credit today.