Entering March, we discussed the possibility that redemption requests could exceed the standard 5% of net asset value threshold typically set by private credit funds. Exiting March, the average request across larger funds was 15% (Exhibit 1). So, what are the lessons learned and what’s next for private credit? For starters, education is pivotal and needs to evolve faster than the industry. Even if 2026 proves to be a black swan year, funds generating material redemption requests should still generate upper single-digit returns given the income generation of these portfolios.
Redemption requests not great, but selectivity should improve
A nearly complete read on Q1 2026 redemption data shows that funds have ample liquidity and can continue to fund future requests should they occur. Remember, this could be a three-to-five quarter cycle.1
The liquidity comes from share sales (even in a dire first quarter, larger funds took in over $7 billion in new capital), access to debt and portfolio-based liquidity.2 A typical private credit loan has a three-year life until a refinancing event.3 Consequently, about one-third of the portfolio will turnover every year, which provides a natural liquidity buffer above the industry-standard 20% annual redemption threshold. Income generation from the loan portfolio also provides a steady source of cash flow.
Looking at the rest of 2026, it’s likely that funds with severe redemption requests will slow new deployment and drive improvements in selectivity and yield on new investments. A smaller loan portfolio is not the worst outcome and could enable more selective new originations. If loan portfolio health is intact—and we are not seeing broad-based distress – private credit funds should grind through the year and still generate high single-digit returns. Income generation of roughly 10% for a private loan portfolio is not unrealistic this year.
Despite not seeing broad-based distress or breaches in covenants that would indicate a credit quality issue, valuation markdowns are likely to occur. NAVs have started to reflect this with about a 5% decline since peak valuations, which reflects growing pressures on the credit market.4 Software is the outlier sector, and a 3% to 5% markdown on software loans implies minimal impact to total NAV for funds with less software exposure. Funds with outlier exposure (greater than 20%) will obviously be impacted more severely. The distinction between unrealized or “paper” losses and realized losses will be important to bear in mind as mark downs occur. We are not expecting a material increase in realized losses in the near-term.
First quarter subscription and redemption recap
First quarter redemptions followed the trend seen in late 2025 with increases across the board—shareholder requests show about a three-time increase from 4Q 2025 (Exhibit 1). Funds that disclosed redemptions later in March showed higher requests than other large funds that were reported at the beginning of the month. How fund managers decided to satisfy these shareholder demands has been the headline risk as portfolio and balance sheet health have been overlooked.
Of the nine largest private credit funds that reported Q1 2026 redemptions, two funds (Blackstone Private Credit Fund, BCRED, and Oaktree Strategic Credit Fund, OSCF) fulfilled their entire tender offer of 7.9% and 6.8%, respectively, with other funds holding repurchases at 5% as stated in their tender offers.5
Net capital flows will likely be negative in Q1 2026 as a clearer picture of investor demand (or lack thereof) is materializing. The focus has been on redemptions, but net capital flows are equally important, and an indicator of the questions advisors are likely facing. We estimate about $2 billion in net outflows across the larger private credit funds that have reported redemption data (Exhibit 2). Remarkably, despite the negative sentiment, the larger funds generated $7 billion in gross capital inflows in Q1 which could indicate consistent institutional funding.
As advisors contemplate what’s next for private credit, it’s important to remember that redemptions and dividend reductions (for public private credit funds) do not raise concerns about credit quality. Manager selection and education about the performance of long-term investments are key aspects when making allocation decisions. We also think redemption request levels will likely narrow for top-performing managers over the course of the year. For long-term investors allocating to the asset class, redemption volumes are not expected to impact returns or experience provided that managers remain disciplined.
ENDNOTES
- iCapital, BDC Redemptions: Looking Beyond the Gates - iCapital, March 3, 2026.
- SEC filings across larger private credit funds as of April 2, 2026.
- The average life of a loan of 3.9 years (Cliffwater) will typically see a refinancing event prior to the full term.
- Bloomberg, Cliffwater Corporate Lending Fund (CCLFX), with data based on availability as of March 2026.
- SEC Filings.
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