Private credit sector faces systemic stress test as redemption caps at Ares and Blue Owl trigger contagion warnings and liquidity review

The private credit (also called private lending — direct loans made by non-bank funds to companies, typically carrying higher interest rates than syndicated bank debt) sector is showing coordinated signs of stress, with major managers including Ares Management and Blue Owl Capital both imposing redemption limits on large flagship funds. Ares has limited withdrawals from its $10.7 billion private credit fund, while Blue Owl has again capped redemptions in one of its funds such that investors seeking an exit will receive less than a quarter of the capital they have requested. Cliffwater's flagship private credit fund has simultaneously seen a flood of redemption requests from investors, compounded by the fact that it holds stakes in other private credit funds — including Blue Owl's — that are experiencing the same withdrawal pressure, creating a cascading liquidity dynamic. Redemption requests are surging across BDCs (business development companies — listed vehicles that lend to mid-market companies and offer retail investors access to private credit). Analysts have flagged that AI disruption to portfolio companies, falling returns, and a potential snowball effect on defaults could compound the sector's difficulties. Insurers and pension funds face rising exposure to these structures. The sector expanded rapidly after the 2008 financial crisis as an alternative to bank finance for private equity firms acquiring mid-sized businesses. Private credit funds offer borrowers simpler covenants and bespoke loan structures, while promising investors higher returns than public bonds. The current stress differs from 2008 in that contagion is running through illiquid fund-of-fund structures rather than securitised products — but the direction of travel is the same: locked-up capital, frustrated investors, and pressure on valuations.