Private credit faces liquidity tests amid withdrawal limits and valuation cuts

The $1.8 trillion private credit sector has been put under an acute liquidity spotlight in recent weeks as major asset managers and banks imposed withdrawal limits and tightened financing, prompting calls from industry participants that the measures are intended to steady the market rather than signal systemic failure.

Morgan Stanley disclosed that investors sought to redeem roughly 11% of outstanding units in its North Haven Private Income Fund, yet in line with its quarterly rules the vehicle satisfied only 45.8% of those requests, according to a letter to investors reported by Reuters. BlackRock likewise imposed a cap at its $26 billion HPS Corporate Lending Fund after redemption demands reached about 9.3% of net asset value, with the manager limiting withdrawals to 5% for the quarter, a move widely reported by market outlets.

Industry executives defended such gates as prudential. Louis Navellier, chief investment officer at Navellier & Associates, noted that “Blackrock 5% quarterly redemption limit is written into the Private Credit fund’s charter” and argued the provision exists to safeguard long-term value, as cited by Benzinga. John Cocke, deputy chief investment officer of credit at Corbin Capital Partners, told Bloomberg: “You cannot create liquidity from an illiquid asset class”, framing redemption caps as an operational necessity for vehicles that hold loans and other non‑traded instruments.

The rout has also rippled to lenders that provide financing against private credit portfolios. Bloomberg and other outlets reported that JPMorgan Chase marked down the valuations of certain loans tied to software companies and has curtailed new lending against these assets. Sources told Investing.com and Capital Brief that the bank lowered collateral values, reducing how much borrowers can draw against those positions. JPMorgan’s move follows growing concern about the software sector’s vulnerability to disruption from artificial intelligence, and Moody’s reported the bank had $22.2 billion of exposure to private credit as of October 2025, according to market commentary cited by Benzinga.

Market participants emphasise that the current adjustments are not uniform distress signals. Some managers point to rising, but not catastrophic, default pressures: industry commentary put default rates for some funds near 9%, and while scenarios projecting defaults as high as 15% are discussed, proponents say prospective Federal Reserve rate cuts would ease stress on variable‑rate loans and lessen downside risks. John Murillo, chief business officer at B2BROKER, suggested these redemption restrictions “function less as a barrier and more as a stabilizer” for the broader market, reflecting a view that temporary limits can prevent forced sales that would amplify losses.

The episode has accelerated strategic shifts in capital allocation. Wealth and institutional investors appear to be rebalancing toward jurisdictions and sectors seen as offering better yield or diversification. Fund managers have pointed to emerging markets, with India singled out as an attractive opportunity following recent fund closes, while some allocators have adjusted exposure to private equity and credit strategies with significant software holdings. Blue Owl Capital’s decision in February to quicken redemptions at one of its vehicles was cited as another example of industry repositioning.

For retail and wealth investors, the events underscore structural differences between open‑ended mutual funds and funds that invest in private, illiquid loans. Market observers say gating provisions are disclosed in many private credit charters for this reason. Nevertheless, the steps by Morgan Stanley, BlackRock and the cautious stance by lenders such as JPMorgan highlight how stress in a concentrated segment, software‑linked loans and funds accessible to high‑net‑worth investors, can prompt coordinated defensive actions across managers and creditors.

Regulators and rating agencies are monitoring developments, and market participants expect further reassessments of valuation, collateral and financing terms in the weeks ahead as managers seek to balance investor liquidity demands with the long‑dated nature of underlying assets. In the near term, gating and tighter financing are being presented by many in the industry as tools to manage a disorderly run rather than evidence of an imminent collapse.