Written by Kaila Kondas Niza and Svea Tegnestedt

Private credit is a 3.5 trillion dollar industry that opens up opportunities for loans with increased flexibility and personalisation by operating outside of banks’ strict framework. Private credit is an, as of now, 3.5 trillion dollar industry that allows for increased flexibility and personalisation in terms of the structure and terms of loans. Previously, private credit has been reserved for institutional investors, but following Trump’s executive order of “Democratising Access to Alternative Assets for 401(K) Investors” (Mayerbrown.com), the private credit market has boomed and is experiencing what is described as the “private credit gold rush”. So, how does the combination of looser restrictions and an AI boom play out in reality, and what are the real consequences?

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Private credit covers privately negotiated loans between a non-bank lender and a borrower. The details of the loans are more flexible and can be more profitable at a faster rate. The reason for this is that private credit usually has higher interest rates because of having more risky borrowers like start-ups and smaller businesses, that cannot rely on traditional bank financing. Also, these loans are highly illiquid because they are not publicly traded, and the contracts are specifically personalised. This rigidity allows investors to claim an illiquidity premium on the loan as compensation, in contrast to, for instance, public bonds that can be traded at any time. Tying together these factors, it is clear that private credit can carry higher yields. However, it also has a more complex nature and has hence been strictly open to institutional investors. Though recently, this capital has opened up to less-experienced investors, especially following Trump’s alternative asset order. Retail investors, however, are more prone to demand liquidity. This comes from people’s personal finances, where cash may be required for emergencies, expenses or other irregularities on an individual level. This generates an immediate liquidity demand that private credit is not used to cater for, until now that alternative assets have become available to private persons. This is where the structural tension in the

private credit markets begins to take shape. Because it is built on a long-term, illiquid base, when this market is then offered to investors with a high demand for cash and with a tendency towards more short-term decision making, risks of misalignment between available solvency and the underlying assets emerge. Building on this, combined with retail investors’ lower experiences and lower confidence, any drop in the market will put immense redemption pressure on the loans, forcing funds to be sold at lower prices to liquidate more assets or for redemption gates to be put up to limit immediate access to cash and pause the rush to exit. To put it bluntly, any measure will be taken to solve the demand for cash that does not exist.

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Now, due to the popularity of middle-market companies and start-ups turning to private credit for funding, one can observe a direct cause for the redemption pressure that private equity is experiencing right now. A large portion of these smaller companies operate within the software and technology sector, which has experienced significant growth over the past two decades. However, artificial intelligence has now started to intensely reshape the software and technology industry. This causes not only loss of demand for certain services, but also an overall growth in competition and compression of margins. These effects hit a specific group of companies the hardest, namely: the smaller and more middle-market firms. Therefore, technology and software start-ups that largely rely on private equity for financing may now face a sudden drop in revenues following the AI boom. Instability is consequently generated and causes a shake-up of the perceived security of the related fund’s portfolio, which in turn puts many investors on their toes. Overall, artificial intelligence causes an immense shock on the software industry, specifically on these technology start-ups that go via private credit for funding. The effect of AI is becoming increasingly prominent: it is restructuring the entire industry and can even replace certain positions and whole firms. This is making private credit investors want out. Lack of investor confidence and accumulating redemption pressure is getting ever so hefty and the strain that is put on these private credit cracks is starting to look increasingly like something we have seen before; the crisis of 2007/2008.

The case of Blue Owl

In early 2026, the alternative asset management firm Blue Owl experienced significant turbulence. Blue Owl, being one of Wall Street’s biggest private credit firms with over 300 billion dollars in assets, is taking a big hit from the current AI boom. Is it a sign that the private credit bubble may be about to burst? The unregulated growth, lack of transparent valuations and liquidity structure is starting to have backlash and the volatility of private credit is becoming omnipresent.

Blue Owl faced a surge in redemption requests in early 2026 and was forced to increase their redemption limit from 5% up to 17% in January this year for their Technology Income Fund, with 46% of its assets coming from Software companies (Bloomberg), which explains this increased strain. This led to investors withdrawing 15.4% of assets in January and requesting a total withdrawal of 40.7% from their 3 billion dollar tech fund between January and March (The Guardian), evidently leading to liquidity concerns. Following this play out of events, Blue Owl decided to stop redemptions completely in February to buy themselves time, selling 1.4 billion dollars in assets. The misalignment of liquidity is starting to show, and the redemption halt is a direct consequence of this, which all becomes part of a large red flag for investors. The company has been selective with its comments on the matter, but does state that the redemption surge largely comes from “a period of heightened negative sentiment towards the asset class” (The Guardian). One explanation that Blue Owl emphasises for this is that competitors had shared numbers on their own redemption requests, thereby blaming it on the bandwagon effect. At the same time, they claim that it is solely market perception that has taken a toll from the AI boom, while they state that the “underlying credit fundamentals across our portfolio have remained resilient” (The Guardian). The extent to which this pressure on the private credit cracks comes from pure investor insecurity versus actual fall in the corresponding assets depends on many factors, though it is evident that AI will have a negative effect on many software companies, at least to a start, but then the proportionality of the consequent surge in redemption requests from private equity funds is debatable.

Parallels to the 2007/2008 financial crisis

At the heart of both the 2008 financial crisis and the current private credit stress lies the same fundamental problem: risk that is invisible until it is too large to contain. This is due to a multitude of reasons, one of which is the ‘marking to model’ system of private credit firms. They can report the value of their loans based on their internal models instead of market prices, therefore marking to model instead of marking to market. The issue is that it’s almost impossible to confirm the loans are worth what they’re claimed. If investors, fearing economic instability, geopolitical conflict, or high volatility, rapidly sell riskier investments for safer, lower-yield investments, mark-to-model can cause large problems. This has similarities to how subprime mortgage-backed securities were valued before 2008. Before 2008, subprime mortgage-backed securities were similarly valued by internal models rather than market prices, which concealed the true deterioration in the underlying assets until it was too late to prevent collapse. In the same way, private credit’s reliance on manager-provided valuations means that mounting stress in software-heavy loan portfolios may not become visible until the damage is already severe. (PBS Newshour)

Additionally, the 2008 financial crisis showed how minimal risks in specialised markets can spread throughout financial systems. Private credit portfolios are dependent on valuations provided by managers instead of market-based pricing, which means emerging problems may not be apparent until the situation is high-risk. (Discovery Alert)

US banks have made about $300bn in loans to private credit providers, which has helped the rapid expansion of the sector. Private credit faces losses, big banks that lent to the industry would lose significant amounts of money, forcing them to restrict lending to consumers and small businesses, which is where the similarities to the financial crisis in 2008 are apparent. (CNN)

News outlets are currently reporting on the rising redemptions, which are triggering further redemption requests due to mass fear, resulting in a feedback loop similar to the confidence collapse in 2008, where panic intensified the issues. (LPL Research) Established economist Mohammed El-Erian has also taken note of the similarities, posting on X: “Is this a ‘canary-in-the-coalmine’ moment, similar to August 2007?”

However, there are disparities between the two which must be accounted for. Firstly, private credit funds are generally less leveraged today than investment banks that were impacted by the 2008 financial crash. Morgan Stanley analysts have stated that an 8% spike in defaults would be “significant but not systematic”, due to lower leverage among private credit funds when compared to 2008. (CNBC)

Secondly, in 2008, there was FAS 157, which was an accounting rule forcing banks to value their assets at whatever the current market price was, even if the plan was to hold them long term. Therefore, if a mortgage-backed security dropped in value, you had to write the loss into their books immediately, regardless of whether you sold it or not. When housing prices collapsed in 2008, banks were forced to suddenly report large losses on paper all at once, destroying confidence with banks no longer lent to each other and an immediate credit freeze. In today’s market, this is different as mentioned earlier, they use their own internal models to value loans, so even if a borrower is struggling, the fund can technically still report the loan near its original value; there’s no forced, sudden write down triggering a reaction like in 2008. But there may be risks of a ‘slow bleed’. While there may not be a dramatic crash like 2008, it may be slowly deteriorating with a gradual credit tightening, making it more difficult for businesses to borrow, reducing investment over the years instead of months. (Wealth Management)

But portfolio strength is higher, and stocks have not lost all their value yet, so that level of crisis hasn’t been reached, though it is for sure something to look out for. There is 99.7% of par value on the loans, implying the situation isn’t yet a crisis. (CNBC)

Conclusion

So are we experiencing the financial crisis again? There are concerning parallels between the two, like liquidity mismatch, bank exposure, opacity, and retail investor volatility due to a lack of private credit liquidity, even if the severity is not at 2008 levels. These minor cracks are structural vulnerabilities, illustrated by the Blue Owl case. Choosing to freeze fund redemptions completely and sell $1.4bn in assets just to stay afloat is a signal, with established economists like El-Erian publicly drawing the conclusions to August 2007, the issues cannot be easily dismissed. However, the current situation is particularly concerning because it is difficult to see coming. Unlike 2008, there isn’t a mark-to-market rule forcing losses to be apparent to individuals

outside of the company. Internal issues can be hidden within models for months or years while the ‘slow bleed’ begins to restrict credit across the economy. By the time it’s significantly noticeable, the damage may be irreversible. But the situation has security compared to 2008. With lower leverage, stronger portfolio quality, and loan values still close to par suggests the system hasn’t yet reached breaking point. While the situation is not a crisis yet, it is not safe either. Private credit is facing pressure for the first time at a large scale, with retail money in the mix for the first time, therefore the outcome isn’t predictable. As Kyle Walters put it: “Private Credit’s golden era is not over yet, but the days of generating equity-like returns might be”