Private credit—the business of lending to companies outside the traditional banking system—is showing a curious split. On one hand, the biggest managers are still raising enormous sums. Ares Management brought in a record $36 billion in the second quarter, and Blue Owl Capital saw its assets grow. On the other hand, Fitch Ratings says the 12-month US private-credit default rate hit a record 6.0% through June, and retail investors have been asking for their money back at a high pace.
That contrast is the story of private credit right now: institutional money keeps flowing in, while some everyday investors are testing the limits of newer, more liquid funds.
What the numbers show
Ares Management, one of the largest alternative-asset managers, said its assets under management rose 17% from a year earlier to $671.3 billion. It also ended June with $170 billion of uninvested capital—money it can put to work in new deals. That's a sign that big investors, like pension funds and sovereign wealth funds, still see private credit as an attractive place to park money, even as defaults climb.
Blue Owl, another major player in the space, also reported growth in its assets, though the brief doesn't give exact figures. The pattern is clear: the largest firms are still expanding.
But Fitch's data paints a different picture for the health of the underlying loans. A 6.0% default rate means that, over the past year, about 6 out of every 100 private-credit loans have gone bad. That's a record for the sector, which has historically boasted very low default rates compared to public high-yield bonds.
Why defaults are rising
Private credit boomed during the low-interest-rate years, as companies borrowed heavily from these funds instead of banks. Now, with higher rates and slower economic growth, some of those borrowers are struggling to make payments. The rise in defaults is a natural consequence of that stress.
It's important to note that a 6% default rate is still relatively low compared to, say, the 10%+ default rates seen in high-yield bonds during past recessions. But for a sector that marketed itself as ultra-safe, it's a notable shift.
The retail redemption question
The other wrinkle is the so-called “semi-liquid” funds. These are private-credit funds designed for wealthy individuals and even some everyday investors, offering more frequent redemption windows than traditional private equity. But when many investors ask for their money back at the same time—as has been happening—it can strain the fund's ability to sell assets quickly.
Retail redemption requests have stayed high, according to the brief. That suggests some individual investors are nervous about the asset class, even as institutions double down. This is a classic tension in private markets: the assets are illiquid, but the investors want liquidity.
What it means for investors
For the average investor, this story is a reminder that private credit is not a monolith. The biggest players, like Ares and Blue Owl, have deep pockets and can weather a higher default cycle. They also have the scale to pick better loans and negotiate better terms.
But for those who invested in semi-liquid funds, the redemption pressure is a warning sign. If a fund can't meet redemption requests, it may have to sell assets at a discount or impose gates, which can hurt returns.
For most people, private credit is still a niche asset class, often accessed through institutional funds or high-net-worth channels. But the trend is worth watching because it reflects broader stress in the corporate lending market. If defaults keep rising, it could spill over into other areas, like European bank earnings or even global stock markets.
The bottom line
Private credit is at a crossroads. The biggest managers are still raising record amounts, which suggests they see opportunity in the current environment—perhaps buying loans at a discount or lending to companies that can't get bank financing. But the record default rate and retail redemption pressure show that the risks are real.
Investors should understand that private credit is not a risk-free alternative to bonds. It offers higher yields, but with that comes higher risk, especially in a downturn. The current data is a reminder to read the fine print on any fund's liquidity terms and to be realistic about the potential for defaults.
As the sector matures, the gap between the haves (large institutions) and the have-nots (retail investors in semi-liquid funds) may widen. For now, the money keeps coming in, but the cracks are showing.
