The private-credit boom, explained in ten questions

Private credit was the quiet success story of the last decade. In 2026 it stopped being quiet. Here are the questions I kept getting asked, with the answers as plainly as I can give them.

1. What is private credit?

Loans made by investment funds rather than banks, usually to mid-sized companies, often ones owned by private equity. The loans are not traded on a public market, hence "private". The Economist's definition is the simplest: loans to private mid-size companies made by investment funds.

2. How big is it?

The IMF puts the global market at just over $2tn, mostly in the US, which makes it about the size of the high-yield bond market. The FT argues it is larger still once you count adjacent lending. It is also spreading into new areas: Apollo led a $35bn financing for Broadcom's AI chip platform this summer, the kind of deal that would once have been a bank syndicate.

3. Why did it grow so fast?

Two reasons. After 2008, regulation pushed banks to take less risk, and the funds stepped into the gap. And investors wanted yield. Private credit offered 10 to 12 per cent returns with, on paper, very low volatility, because the loans were not marked to market every day. Pension funds, insurers and eventually wealthy retail investors piled in through vehicles that promised quarterly withdrawals.

4. So what went wrong?

The withdrawals. Blackstone's flagship $79bn fund received $2.1bn of redemption requests in a single quarter. Blue Owl halted redemptions at one fund, which spooked everyone. By the first quarter of this year investors were trying to pull more than $20bn from the largest interval funds and business development companies. Wealthy individuals, who had been the fastest-growing source of money, started backing away.

5. Why did they want out?

Partly because the returns stopped looking special once interest rates settled. Partly because of software. A lot of private credit was lent to software companies on the theory that their subscription revenues were bulletproof. Then AI made investors doubt those companies' futures, and the FT reported that investors dumped listed private credit funds over bad-loan fears and AI exposure. The Blue Owl tech fund was particularly exposed.

6. Are the loans actually going bad?

Officially, not much. Fund managers say defaults are low and the withdrawal caps show the system working as designed. The Economist is more sceptical: headline defaults are under 2 per cent, but the true figure is much higher once you count borrowers who pay interest with more debt rather than cash. The FT also found that funds have been selling debt to themselves at a record rate to generate cash, which is legal but not reassuring.

7. What is a "gate" and why does it matter?

Most retail private-credit funds let you withdraw a few per cent of the fund each quarter. If more people ask, the fund pays out the cap and everyone else waits. That is a gate. It protects the fund from a fire sale, but it also tells investors their money is less liquid than they were led to believe. The FT called this private credit's structural problem: liquid promises on illiquid assets.

8. Could this become a financial crisis?

Opinions differ, which is itself informative. A study covered by the FT concluded private credit could amplify the next financial crisis. The Bank of England has signed up Blackstone, Apollo and KKR to a stress test. Wall Street banks have started trading credit default swaps against the big private credit funds, which is how you know the market has decided the risk is real enough to price. The Economist's leader asked how worried you should be and landed on: worried about the funds, less worried about the system, because the losses sit with investors who signed up for them rather than with depositors.

9. Is anything being done to make it more liquid?

A secondary market is developing, where investors sell their fund stakes to other funds at a discount. The Economist thinks it may help, partly because loans throw off interest and so are easier to value than private equity stakes. Firms like Partners Group insist they still expect solid growth despite the redemption uncertainty.

10. What should an ordinary investor take from this?

Three things. If a product promises high yield, low volatility and quarterly liquidity at the same time, one of those three is not true. The low volatility in private credit came from not measuring it, not from not having it. And the money that flows out of private credit has to go somewhere; the funds that survive this with their gates intact and their loan books honest will be raising money again in two years, probably on better terms for the people who lend it.

The boom is not over. The easy part of it is.