Source: Wall Street Journal
As market attention focuses on geopolitical risks, a quiet but growing private credit crisis is accelerating within the U.S. financial system. Redemption rushes, asset fire sales, fund closures—this script is one investors saw in 2008.
This week, BlackRock, the world's largest asset manager, announced restrictions on redemptions for its $26 billion HPS Corporate Loan Fund (HLEND), marking the most significant signal to date.
Previously, Blackstone's private credit fund faced a record 7.9% redemption request, causing Blue Owl's stock price to fall below its SPAC listing price.
Three private credit giants are facing crises in succession; the gears of a vicious cycle have already engaged.
Meanwhile, PIMCO, in its latest client report, warned that the direct lending industry is headed for a "full-cycle default period," making stress testing inevitable. This assessment comes from a long-time critic of private credit, and its weight cannot be ignored.
The spread of the private credit crisis has directly manifested in the stock price movements of related publicly traded companies. Blue Owl's stock price has fallen below its SPAC offering price, and the valuations of private credit-related businesses at institutions such as Blackstone and BlackRock are under pressure, as the entire industry faces a systemic reassessment of investor confidence.
01 Lockdown: BlackRock Restricts Redemptions in Its Private Credit Fund
According to a Wall Street Journal article, BlackRock stated on Friday that shareholders of its HPS Corporate Lending Fund (HLEND) collectively requested to redeem 9.3% of the shares, but the fund management decided to set the repurchase cap at 5%, approximately $1.2 billion.
BlackRock characterized the move in its statement as a "fundamental" arrangement for fund liquidity management, stating that without such restrictions, a structural mismatch would arise between investor capital and the duration of private credit loans.
The wording sounded calm, but the market understood its implication: if full redemption were to be paid out, BlackRock would have to initiate a large-scale asset sale.
Previously, another private credit arm of BlackRock issued a concerning signal—BlackRock TCP Capital Corp. slashed the valuation of a $25 million loan to Infinite Commerce Holdings from 100 cents to zero in its fourth-quarter report, despite having valued the loan at par just three months earlier. A drop from 100 to 0 in three months, with no warning.
02 Burning the Linked Camps: The Vicious Cycle Triggered by Selling
BlackRock's closure is not an isolated event, but rather the end of a fuse that has already been lit—or perhaps, a new beginning.
Three weeks ago, Blue Owl Capital took the lead.
Faced with a surge in redemption requests—primarily due to its heavy exposure to software lending, an asset class rapidly depreciating under AI-related pressures—Blue Owl announced the sale of $1.4 billion in private credit loans, opting for asset liquidation over reinstating its quarterly redemption mechanism, effectively freezing investor funds once again.
The company emphasized that all assets proposed for sale have the highest internal risk rating (level 1 or 2 on a five-level scale).
However, this "high-quality assets first" strategy is precisely an accelerator of crisis contagion. If buying demand in the secondary market is limited to high-quality assets, the sale of investment portfolios by other Business Development Companies (BDCs) will face even thinner liquidity. It is reported that NMFC has indicated it is moving forward with the sale of approximately $500 million in investments, representing 17% of its total portfolio as of the end of Q3 2025.
The situation at Blackstone is equally severe. Its private credit fund, BCRED, manages $82 billion in assets, and this quarter’s redemption requests reached a record 7.9%, exceeding the legal cap of 7%. To avoid triggering a gate mechanism, Blackstone employees were required to personally invest $1.5 billion to cover the shortfall.
Three institutions, three responses, but the same logic: locking doors or de facto locking doors to avoid forced selling that could trigger a larger valuation collapse. Analysis points out that the problem lies in BlackRock’s decision to lock doors itself, which has already sent the strongest possible signal of panic to the market, potentially triggering even more investors to rush to redeem their shares.
03 Blue Owl: Stock Price Falls Below IPO Price, Risk Exposure Remains Exposed
As the epicenter of this crisis, Blue Owl Capital's situation continues to deteriorate. Its stock price fell below the $10 SPAC listing price this week, hitting a three-year low.
According to Bloomberg, citing people familiar with the matter, Blue Owl has a £36 million (approximately $48 million) exposure to Century Capital Partners Ltd., a London-based property lender—this risk exposure was indirectly formed through its 2024 acquisition of Atalaya Capital Management.
Century applied for administration last month, with total liabilities of approximately £95 million; NatWest Group and Hampshire Trust Bank are its senior creditors.
Blue Owl holds the highest-risk subordinate tranche of the Century loan portfolio. Century’s manager, RSM UK, expects full recovery of the senior loans, but the outcome for the subordinate tranche remains uncertain.
This event reveals another side of the private credit expansion phase: asset-backed financing was once hailed by industry leaders as a new frontier for growth, with executives from Pimco, Carlyle Group, Marathon, and Blackstone publicly expressing strong confidence in this sector. Today, the risks in this space are emerging in unexpected ways.
04 PIMCO Warning: A Widespread Default Cycle Is on the Way
Amid growing concerns in the private credit market, PIMCO analysts Lotfi Karoui and Gabriel Cazaubieilh issued their most direct warning yet in a recent client report, stating:
Like every mature segment of the leveraged finance market, direct lending will eventually face a full credit cycle—one that will test its resilience to both industry-specific and macroeconomic shocks.
PIMCO was one of the early critics of private credit. As fundraising for direct lending strategies surged, the firm, which manages approximately $2.3 trillion in assets, chose to take a contrarian stance, proactively identifying potential issues within companies backed by private credit.
PIMCO's analysis highlights several key risk factors:
First, the record-breaking fundraising volumes following the 2008 financial crisis led to a sustained relaxation of underwriting standards;
Second, the concentrated exposure to the software industry in the direct loan portfolio will weigh on relative performance under the impact of AI;
Third, direct lending funds have long failed to provide adequate risk premium compensation for investors' liquidity lock-ups.
Regarding the liquidity challenges faced by BDC investors, PIMCO’s wording is equally straightforward: "Half-liquidity is not the same as full liquidity. Investors must assess their own liquidity needs and their tolerance for restricted access to funds."
However, PIMCO also distinguishes between different segments within private credit, noting that niche areas such as asset-backed financing still offer investment value and can provide an "investment-grade" risk profile. Last year, PIMCO raised over $7 billion for its asset-backed financing strategy.
Could the 2008 Subprime Mortgage Crisis Happen Again?
The structural logic behind this crisis is not complicated: semi-liquid products promise quarterly redemptions, but their underlying assets are long-duration private loans; when redemption requests exceed a threshold, managers must either freeze redemptions or sell assets; asset sales depress prices, triggering further mark-to-market declines and prompting more redemptions—creating a vicious cycle.
This same logic played out in the 2008 subprime mortgage market, where the initial cracks appeared in a market segment once considered "sufficiently diversified and sufficiently sophisticated."
Today, the private credit market has reached a size of $1.8 trillion, and its concentration of risk, lack of valuation transparency, and liquidity mismatches are being tested in similar ways.