In this article, Chris Vizzi explains why redemption queues, software exposure, and negative headlines reflect liquidity mechanics and sentiment more than broad solvency issues.
Recent redemptions and software concerns are driving headlines, but they don’t tell the full story.
There is always a pressure point in every cycle. Right now, that pressure point is private credit.
Over the past few months, headlines have started to stack up, almost all of them negative. Questions around software exposure. Concerns about valuation marks. Redemption queues forming in certain vehicles. And for many, it has been enough to jump to a familiar conclusion: private credit is broken.
I’ll step out on a ledge here and say, I think that conclusion is premature.
What we are seeing today is not a clean signal of deterioration in the asset class. It is a mix of sentiment, liquidity mechanics, and a shifting narrative around one specific pocket of the market. Those are not the same thing as a broad-based credit problem.
That distinction matters as we try to separate the news from the noise.
A liquidity squeeze is not a solvency crisis
Everyone is talking about redemptions. Some headlines even imply that managers are refusing to give investors their capital back.
Yes, some private credit vehicles are seeing elevated redemption requests. In certain cases, those requests have exceeded quarterly limits, creating queues and frustration for investors who expected more flexibility. Part of what we’re seeing is also an education gap. As private credit has become more accessible, it has found its way into portfolios that may not have been built with its liquidity profile fully understood.
Limited liquidity risk is real. It is also exactly how these structures were designed to function.
Private credit is, by definition, a less liquid asset class. The 5% quarterly redemption framework that many non-traded vehicles use exists to prevent forced selling into illiquid markets.
When redemption demand rises, the structure slows things down. It does not break.
That may not feel good in the moment, but it is fundamentally different from a scenario where managers are forced to liquidate assets at distressed prices to meet withdrawals (as seen across parts of fixed income markets in March 2020). One is a feature of the structure. The other is a signal of real impairment.
Right now, what we are seeing is the former.
The software narrative is driving more fear than fundamentals
A large part of the current concern traces back to software exposure. While that exposure is meaningful, it still represents a minority of the overall private credit market, generally in the range of 15% to 25% depending on the strategy.
The narrative has accelerated. AI is moving fast. Software margins are under pressure. If software weakens, private credit portfolios tied to that sector must be at risk.
There is some truth in that. The old playbook for software companies is changing. Growth at any cost is no longer rewarded the way it was. Margins are compressing in parts of the market. Some borrowers will struggle to adapt.
But disruption is not the same as collapse.
The idea that AI eliminates the need for software entirely reflects a misunderstanding of how these businesses actually operate. They are not static products. They are living systems that require maintenance, integration, security, and constant refinement.
The same applies here. The fact that software is evolving does not mean every borrower tied to the space is suddenly impaired. For some borrowers, the evolution is a tailwind.
More importantly, private credit is not monolithic exposure to early-stage, unprofitable technology. Much of the lending in this space is to established, cash-flowing businesses with recurring revenue, sponsor backing, and long-term contractual visibility.
There will be dispersion. Some companies will struggle. Others will adapt and continue to perform.
That is a far more nuanced reality than the current narrative suggests.
Where you sit in the capital stack still matters
This is where the conversation often loses precision. Saying private credit is bad is like saying it’s hot in the United States today. That obviously depends on where you are.
Private credit is not just about the borrower. It is about structure.
In most direct lending portfolios, investors are positioned in senior secured, first-lien loans. That means they sit at the top of the capital structure, ahead of equity and subordinated capital. It also means there is typically an equity cushion beneath them, often provided by private equity sponsors. Sometimes the lender and the private equity are the same company, but we’ll save that issue for another article.
That structure is not a guarantee. But it changes the math.
In credit, defaults do not necessarily equal losses. What matters is recovery. What matters is how much value sits below you if something goes wrong. What matters is whether there is a sponsor with both the incentive and the capacity to support the business through a difficult period.
Those dynamics do not show up in a headline about software exposure or redemption queues. But they are central to how outcomes are ultimately determined.
So far, broad non-accrual levels across the asset class remain relatively contained. That does not mean they will stay that way. It does mean we are not currently looking at a system where losses are cascading through portfolios in a way that would justify the level of concern we are seeing.
Manager selection is starting to matter more
This is the real shift happening.
For years, private credit benefited from a strong tailwind. Low defaults, supportive markets, and consistent demand made it easier to deliver stable outcomes across a wide range of managers.
A rising tide raises all ships. But that environment is changing.
Dispersion is increasing. Underwriting discipline matters more. Sector exposure matters more. Structure matters more. The difference between experienced managers and those who simply rode the tide is starting to show up.
That is healthy for the asset class over the long term. It is also where risk actually sits today.
The question that investors should be asking is not whether private credit works as a category. It’s which managers have the ability to navigate a more complex environment.
There are risks worth paying attention to
None of this is to suggest that everything is fine.
Software exposure will need to be monitored. Some borrowers will not meet expectations. Non-accruals are likely to move higher over time. Liquidity expectations across the investor base may need to reset.
There is also a scenario where conditions worsen. The conflict in the Middle East continues indefinitely. A new normal of $100 oil. If economic growth slows meaningfully or capital markets tighten further, pressure could build more quickly across portfolios.
Those are real risks. They deserve attention.
But they are not the same as saying the asset class is fundamentally broken.
Stepping back from the headlines
Private credit is still a relatively small part of the overall corporate lending market. It continues to offer a return premium over public credit. It continues to provide access to income streams that are not directly tied to daily market volatility.
Most importantly, it continues to operate within a structure that prioritizes seniority, contractual cash flows, and downside protection.
What we are seeing right now is a test of that structure.
With more scrutiny comes less forgiveness. There is a greater need for selectivity. It is what a more mature phase of the cycle looks like.
Even the most vocal critics of private credit aren’t stepping away from it. If anything, they have just become more selective.
The headlines are moving faster than the fundamentals. That gap tends to create noise. And that noise tends to create opportunity.
