Private Credit Moves from 'Fund Run' Fears to Careful Review Phase

Fears of a Fund Run Subside Early in the Year
Focus Shifts to Risk Assessment and Preemptive Measures

The concerns over a private credit lending crisis, which shook global financial markets earlier this year, appear to be subsiding. While anxieties have not been completely eliminated, the anticipated level of "fund runs" has not materialized. Major asset managers responded to redemption requests and adjusted their portfolios, thereby preventing the situation from escalating into a systemic risk. Domestic major limited partners (LPs), such as pension funds and mutual aid associations, are also responding calmly by conducting their own reviews rather than reacting with panic.

According to the investment banking (IB) industry on May 13, the Military Mutual Aid Association plans to dispatch staff to the United States in the near future to review its private credit investments. Although the private credit crisis has eased, the association intends to directly inspect local asset managers and portfolio companies, as well as assess the possibility of redemptions in preparation for future risks. A representative from one mutual aid association stated, "The private credit fear at the start of the year was somewhat excessive," adding, "Now, the focus is on calmly checking default and loss rates within the portfolio and reviewing necessary countermeasures."

At the beginning of the year, a surge in redemption requests fueled concerns over a "fund run" comparable to a bank run. The structural mismatch—where private credit funds hold long-term, illiquid loans but could face a sudden surge in short-term redemption requests from investors—was highlighted as a key issue. As liquidity anxiety grew, fears arose that asset managers would be forced to sell high-quality assets first, leading to simultaneous instability in both fund performance and scale.

However, the market did not follow the worst-case scenario. The use of redemption limits and time lags by asset managers played a significant role in dispersing liquidity pressure. Unlike ordinary deposits, private credit funds are not structured for immediate full withdrawal; instead, they typically set quarterly redemption limits. Major asset managers addressed some redemption requests, adjusted limits selectively, and proactively explained their portfolio stability to allay investor concerns. Blackstone reportedly allocated company and executive funds and directly contacted LPs in various countries to explain the situation.

Portfolio adjustments were also made in tandem. Both BlackRock and Blackstone lowered the net asset value (NAV) of funds with high exposure to software company loans, reflecting related concerns. Blue Owl Capital adjusted dividends for its OBDC fund. Rather than insisting there were "no problems," asset managers partially revalued assets and adjusted dividends, thereby incrementally recognizing potential losses.

As a result, the perception has spread that problems were concentrated not across the entire market but in specific sectors and fund structures. A domestic LP representative commented, "It was mainly business development companies (BDCs) targeting retail investors and funds with significant software exposure that were affected. It was not the case that all closed-end private credit funds focused on institutional LPs were in crisis." The Wall Street Journal (WSJ) also recently reported that, while the rapid growth phase of private credit has ended, institutional investor capital continues to support the market.

For the time being, as both LPs and asset managers are closely monitoring risk, the prevailing view is that the likelihood of renewed fund run fears is limited. This shift is attributed to the market’s changing view of private credit—not as a "safe bond alternative," but as an asset class where selection and structural management are crucial.

A senior official at a domestic LP explained, "While it is true that some software companies have faced difficulties, it should also be noted that many borrowing companies are still generating cash flows despite bearing double-digit interest burdens. As private credit continues to offer meaningful returns, we plan to manage and scrutinize the risks more carefully, rather than excluding it from our portfolios."