Concerns around private credit don’t seem to be going away.
One quarter after investors in Blackstone’s (BX +1.33%) flagship, $79 billion private credit fund, referred to as BCRED, requested redemptions totaling about 8% of shares, investors are now requesting redemptions totaling 10%.
While some funds like Blackstone met all redemption requests in the first quarter, they are now not planning to be so lenient and will actually put up a wall to stop them.
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How does private credit work?
Private credit is a complex industry that is also less regulated than the traditional banking space. Most banks are regulated by three different regulators.
Private credit has grown as banks have done less lending over the years.
Essentially, private credit is when a non-bank entity makes a loan. Private credit is a broad term, and there are many different types.
For instance, private credit encompasses warehouse loans made to non-bank mortgage lenders and asset-backed loans that are collateralized by a pool of consumer loans.
Private credit also includes direct lending to companies, where most of the current concern lies.
Private credit funds have been attractive to investors because annual distributions can be in the double-digit percentile. Private credit funds may also offer greater protection than equity because they can secure a senior position in the capital stack.
Opening private credit to retail
Funds like BCRED were launched in 2021 as perpetual, non-traded business development companies (BDCs) specifically to open exposure to a wider pool of investors, including retail investors.
Perpetual non-traded BDCs do not trade on the public markets, but there is no closing date, so they can continually raise capital.
Institutional investors in BCRED still have to invest at least $1 million, while retail investors need only invest $2,500.
Interestingly, retail investors also did not have to meet the U.S. Securities and Exchange Commission’s definition of accredited investor.
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Key Data Points
Qualifying retail investors had to have either a net worth of $250,000 or a gross annual income of $70,000 as well as a net worth of $70,000.
Most funds like BCRED capped quarterly redemptions at 5%. The goal is to prevent too many investors from withdrawing their funds, so there are no liquidity concerns and the fund can focus on long-term returns.
However, it’s unclear how many retail investors fully understood this aspect when they invested.
Why investors are so concerned right now
The main concern about private credit has been direct lending, primarily because private credit issued many loans to software companies, which are now facing pressure.
There have also been reports of rising private credit defaults across the sector, although remember it’s a broad sector.
Software stocks have struggled amid investor concerns that artificial intelligence could quickly replicate software products, eroding existing software moats.
This could lead to margin contraction.
According to AltsWire, a news publication focusing on the illiquid and semi-liquid alternative investment industry, 26% of BCRED’s fund had software exposure at the end of 2025.
In a first-quarter update provided on April 29, BCRED stated that its software investments are “focused on large, established market leaders in verticals we believe are more insulated from AI-related disruption.”
The fund’s software investments have an average enterprise value of over $4.5 billion. They were also underwritten at a very conservative average loan-to-value ratio of 37%, meaning the borrower has significant equity in the deal.
Following the big sell-off in software earlier this year, BCRED said the loan portfolio remains two times covered by enterprise value.
“BCRED remains well capitalized, and repayments [from loans] and inflows have outpaced shares repurchased,” the fund said Thursday, according to The Wall Street Journal.
So BCRED seems able to weather the storm, but investors should be cautious about investing in this volatile asset class, as there are many unknowns.
At the very least, they should make sure they understand how the funds work and the quarterly caps on redemption requests.
