Private Credit Update

March 2026 | Hightower Private Market Solutions

Private credit has generated its share of headlines recently, and not all of them flattering. We want to address that directly and then offer what we think is a more accurate frame for understanding what’s actually happening.

Headlines vs. Reality

The noise around private credit is real, but we believe it is largely misdiagnosed. This is not a private credit crisis. What we are witnessing is a broad technology transition, driven by AI, that is simultaneously reshaping public equity, private equity, venture capital, and private credit. Every asset class with meaningful software or technology exposure is being stress-tested, and private credit is no exception.

The distinction that matters is not whether a private credit portfolio has been touched by this transition, but how it was constructed in the first place. Managers who built portfolios around asset-backed strategies with identifiable collateral and predictable cash flows are navigating this environment from a position of strength. Those who leaned heavily on enterprise value lending or software-heavy direct lending are facing a much harder road.

The headlines tend to blur this distinction. We think investors deserve a clearer picture.

Blue Owl: An Orderly Exit, Not a Fire Sale

One of the most discussed recent events in private credit was Blue Owl’s OBDC II selling approximately $600 million in loans at 99.7% of book value.¹ We want to be precise about what that transaction actually represents.

Sophisticated institutional buyers, pensions, insurance companies, conducted serious due diligence and paid essentially par. That is a validation of the marks, not a repudiation of them. The transaction returned roughly 30% of NAV to clients, which we characterize as an accelerated redemption under an orderly liquidation process. Private credit can be liquid when the right portfolio manager is running the book.

We also acknowledge that fraud is difficult to eliminate entirely, recent cases involving First Brands and incidents abroad serve as reminders. Our response is rigorous operational due diligence focused on how managers mark, value, and monitor their portfolios. The process behind the number is as important as the number itself. For Blue Owl’s remaining portfolio, the majority of positions are expected to mature at par over the next two to three years, with some names on watch but nothing we consider material.

Structure Matters: Interval Funds vs. Tender Offer Vehicles

Recent developments across several large private credit interval funds bring an important structural question to the surface, one that goes beyond any single manager or portfolio and deserves careful consideration by wealth managers and their clients.

Interval funds have grown in popularity for several reasons. They typically offer daily subscriptions through ticker trades, simplified onboarding, 1099 tax reporting, and a familiar investment experience that fits naturally into a client account. Those are genuine operational advantages. For wealth management platforms and their clients, the ease of access that interval funds provide has meaningfully expanded participation in private credit as an asset class.

However, it’s important to understand that this accessibility comes with structural obligations around redemptions. Under current SEC Rules, interval funds are required to conduct repurchase offers at regular intervals, most commonly quarterly, with a mandatory minimum repurchase floor of 5% of net assets per quarter. The fund manager has discretion to offer more than 5%, up to their stated maximum, but they cannot offer less. That floor is not optional, and it cannot be suspended.

Private credit is, by its nature, still an illiquid asset class. These private Loans are not liquid exchange-traded instruments. Positions cannot be efficiently unwound without cost, time, or potential disruption to portfolio integrity. The credit quality of those loans depends on a manager’s ability to be patient, disciplined, and insulated from external pressure to liquidate. When redemption demand materially exceeds the mandatory repurchase floor, the fund does not have the option to pause and protect the portfolio. It must execute partial redemptions and defer the remainder to subsequent quarters. This can impact redeeming investors, who may receive less than requested over an extended timeline, and may affect remaining investors, who could absorb concentration and liquidity risk if the fund is not thoughtfully rebalanced to meet redemption demands.

We have seen this dynamic start to play out in real time across multiple large private credit interval funds in recent weeks, where redemption requests have outpaced what the mandatory repurchase mechanics are able to satisfy in a single quarter. We should expect this process, working through deferred redemption queues at 5% to 7% of NAV per quarter, to take several quarters to fully resolve, even assuming redemption demand stabilizes. If market sentiment continues to weigh on the space, that timeline may extend further.

It is important that investors understand the differences between interval funds, tender offer funds and drawdown closed-end fund structures. Tender offer funds operate under a different regulatory framework than interval funds, one that grants fund managers the explicit ability to suspend, limit, or decline repurchase offers when doing so is determined to be in the best interest of the fund. There is no mandatory quarterly floor and no regulatory obligation to sell assets into a dislocated market. A manager who identifies deteriorating conditions in a specific credit vertical can exercise judgment and protect the portfolio accordingly. That protection matters as much for the investor remaining in the fund as it does for the investor seeking to exit. It is the mechanism that enables an orderly portfolio to stay orderly.

We want to be clear about how we contextualize the current stress in certain private credit interval funds: this is not primarily a credit quality crisis, though that framing dominates the headlines. The pressure being observed is driven, in large part, by a structural shift in software-oriented lending, the same AI-driven technology transition we discuss throughout this letter. The verticals under stress are identifiable and are not uniformly distributed across private credit as an asset class.

The structures being employed by managers in the private credit space may also be impacting the volatility in the asset class. The greater discretionary flexibility managers have in managing redemptions during periods of dislocation may have an impact on the ability for the fund to effectively rebalance and reposition for existing and redeeming shareholders.

The Technology Transition Is the Real Story

AI is not a future risk to software-oriented lending, it is an active one. The way software is built, sold, and consumed is changing rapidly, and private credit portfolios with concentrated software exposure are absorbing that disruption now. The impact will vary significantly across managers depending on portfolio construction, underwriting discipline, and the specific verticals they’ve financed.

This same dynamic is playing out across the investment landscape. Venture capital funds with heavy SaaS exposure, private equity sponsors relying on software-driven EBITDA multiples, and public equity technology portfolios are all grappling with the same fundamental question: how durable is this revenue, and against what collateral is it secured?

We have been deliberately underweighting software-heavy private credit for several years precisely because of this risk. Our conviction has been in strategies where collateral is tangible, cash flows are predictable, and structural protections are meaningful.

Manager Quality and the Coming Shakeout

The private credit boom attracted many new entrants, some of whom overextended through excess leverage, covenant-lite structures, and aggressive underwriting. These managers, not the asset class, are where the real risk sits. The parallel to the CDO era of 2006–2007 is instructive: when rational oversight breaks down and capital rushes to deploy at any price, the reckoning is eventually unavoidable.

We do not believe isolated failures among undisciplined managers will cause systemic contagion. In fact, we expect the opposite, stress among careless managers is likely to create opportunity for those who have been selective and patient. A fund that believed they held a stadium as collateral when they actually only held the naming rights is the kind of story that surfaces during dislocations, and it underscores why operational due diligence is non-negotiable.

Where We Are Positioned: Asset-Backed Finance and Opportunistic Credit

Our two primary areas of emphasis in private credit remain unchanged, and we believe both are well-suited to what lies ahead.
Asset-backed finance remains our core allocation. Lending against identifiable assets — real property, equipment, receivables, and contracted cash flows, insulates portfolios from the enterprise value erosion that software-heavy direct lending is now experiencing. The income, seniority, and diversification benefits that define the private credit thesis are most durably expressed here.

Opportunistic credit is where we see the emerging setup. There is substantial dry powder sitting with disciplined managers, positioned to take advantage of the mistakes being made by late-cycle, overextended funds. Historically, the best vintages for our select managers have been sourced during periods of stress and dislocation. Depending on how conditions develop, distressed situations could offer attractive deployment opportunities with meaningful upside for long-term investors.

We understand that the current headlines may create discomfort, and we take that seriously. But our assessment is that the narrative is running well ahead of the underlying data for well-structured strategies. Clients who are positioned in asset-backed and opportunistic credit today are, in our view, on the right side of this transition.

Sources:

1. Blue Owl: As of February 18, 2026 ↩︎

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