$1.8 trillion “invisible run”: why private credit is starting to fail to deliver

The hidden problem

Private credit — the opaque pool of direct loans and credit funds that grew after the 2008 crisis as banks pulled back — is showing structural strain. It has been reported that the market has expanded to roughly $1.8 trillion (some estimates up to $2 trillion), and industry veterans tell family‑office outlet 家办新智点 that the risks never disappeared; they were simply shifted into a less transparent “shadow” system. Covenants have been loosened, Pay‑in‑Kind (PIK) provisions have capitalized interest into principal, and NAV accounting has diverged from what assets would fetch in a real secondary sale. Who will buy when lenders need to exit?

How the mismatch works

After 2008, tighter bank regulation and a long low‑rate cycle pushed credit supply into non‑bank structures: BDCs, evergreen vehicles and semi‑liquid private credit funds that offer quarterly redemptions but hold 5–7 year loans with no active secondary market. In a boom, managers raced to deploy capital and protections were pared back. PIKs can mask cash‑flow stress by rolling interest into rising principal — delaying defaults but increasing leverage. Reportedly, Fitch data showed US privately‑monitored sample default rates spiked to about 9.2% in 2025, with a broader 12‑month rolling default of roughly 5.4% through February 2026, underscoring how credit quality and contract design have both deteriorated.

Liquidity and pricing shock

The liquidity illusion is reinforced by NAV‑based pricing and quarterly gating rules (commonly ~5% per quarter). When public proxies began trading at discounts to NAV late 2025, arbitrage and redemption pressures intensified. It has been reported that Apollo Global Management’s Apollo Debt Solutions saw roughly 11.2% redemption requests executed only to the 5% limit, and Ares’s Strategic Income Fund faced similar gating. Once investors queue for liquidity, the “semi‑liquid” promise unravels quickly and valuation gaps turn into forced selling.

So what now?

This is not just a market technicality. For Western investors used to exchange prices and covenant enforcement, private credit’s fragility raises questions about risk allocation, transparency and regulator response. Geopolitically, cross‑border capital flows and distribution to wealth management channels complicate contagion risks; if valuations reprice sharply, the effects will reach pension, sovereign and family‑office portfolios globally. Regulators and investors are now asking: did fund structures simply postpone bad outcomes — or did they create an invisible run that will be hard to stop when liquidity tightens?