Cracks Emerge in Private Credit Market as Blackstone’s Flagship Fund Posts 0.4% Loss, Redemption Pressure Builds

Uncertainty over loan repayments for some companies comes into focus
Quarterly redemptions intensify internal liquidity pressure
Risks amplify in the absence of a stabilizing market force

Blackstone Inc.’s flagship private credit fund recorded its first monthly loss in three years and five months, bringing underlying instability in the private credit market to the surface. Analysts point to concerns that the spread of artificial intelligence could erode the business foundations of software companies, feeding into uncertainty over loan repayments and dampening investor sentiment. At the same time, rising credit risk premiums across both public and private markets are rapidly reshaping fund valuation conditions. As large-scale redemptions occur in succession and pressure spreads to major asset managers, overall market tension is increasing.

Valuation losses trigger market unease

On the 22nd, the Financial Times (FT) reported that Blackstone’s flagship private credit fund, BCRED, posted a 0.4% loss in February, marking its first monthly decline since September 2022. The fund, which manages $83 billion in net assets, delivered an 8% return over the past year, but its cumulative performance for January and February 2026 has stagnated at flat levels, signaling a sharp slowdown. In a letter to financial advisors, Blackstone cited widening credit risk premiums across public and private markets, along with valuation losses in certain holdings, as key factors behind the decline.

One notable case involved Medallia, a customer experience software company owned by private equity firm Thoma Bravo. In early February, Blackstone marked down the carrying value of its loan to the company to approximately 78% of par. The loan was subsequently classified as a distressed asset among private credit lenders, raising concerns about inconsistent valuation standards across the private credit market. The risk of deterioration in individual assets has begun to undermine confidence in asset managers’ valuation frameworks themselves.

Market participants have attributed these developments in part to uncertainty surrounding repayment capacity among companies tied to artificial intelligence. Concerns that the expansion of AI could undermine the business models of software firms such as Medallia have weighed on sentiment across credit markets. However, some argue that the situation cannot be explained by sector-specific risks alone. As investors demand higher compensation for risk, differing discount rates have been applied to identical assets, resulting in broader downward adjustments in fund valuations. Blackstone’s reference to rising credit risk premiums as a factor in its losses lends weight to this interpretation.

Executives deploy capital in unusual move

Tensions also surfaced in the process of handling redemption requests. BCRED received $3.8 billion in redemption requests this quarter, equivalent to 7.9% of the fund’s equity. This far exceeded the previously established quarterly redemption cap of 5%, indicating that investor withdrawals were concentrated over a short period. The fact that redemption requests surpassed the preset limit has prompted assessments that the gap between the limited-liquidity structure underlying private credit products and actual investor behavior has become apparent.

The method used to accommodate redemptions also departed from typical practice. Blackstone raised its tender offer limit from 5% to 7%, while the remaining 0.9% was purchased directly by the firm and its employees. In the process, nearly $250 million of company capital was deployed, and more than 25 senior executives collectively invested $150 million of their own funds. The mobilization of personal capital alongside institutional measures underscores the extent to which redemption pressure has intensified.

This approach can be seen as an effort to absorb redemption demand while preserving existing assets. In an environment of widening credit risk premiums, forced asset sales would likely lead to further price declines. The challenge, however, is that relying on internal capital to mitigate price shocks instead of liquidating assets rapidly depletes the fund’s cash reserves. This suggests that repeating the same approach in future redemption cycles will become increasingly difficult, ultimately adding to cumulative liquidity management strain.

Rising concerns over systemic financial risk

Signs of capital outflows are also emerging at other asset managers. Blue Owl Capital’s technology-focused private credit fund recently faced redemptions amounting to roughly 15% of its net assets in a single quarter. In response, Blue Owl suspended quarterly redemptions for certain funds, including OBDC II. The situation subsequently deteriorated rapidly. The firm sold $1.4 billion in loans to 128 companies across three funds at approximately 99.7% of par to pension funds and insurers to secure liquidity, but the market interpreted the move not as routine asset management but as a preemptive risk-off signal. Measures intended to contain redemptions instead amplified market anxiety.

Market reaction was reflected in prices. Blue Owl’s stock declined for 11 consecutive trading days following the suspension of redemptions, marking its longest losing streak on record, and about 60% of its market capitalization was erased over a 13-month period. On the 6th of this month, Saba Capital and Cox Capital launched a tender offer to acquire up to 8 million shares of the OBDC II fund at $3.80 per share, representing a 33.2% discount to its net asset value. The proposal to acquire assets valued at $5.69 per share at roughly two-thirds of that level highlights a significant gap between reported valuations and actual market perception.

Contagion has spread to larger asset managers. At BlackRock, redemption requests for a $26 billion HPS corporate loan fund surged to 9.3%, forcing proportional allocation measures. Morgan Stanley and Cliffwater have also activated redemption limits. In response, several investment banks, including JPMorgan, have begun proactively marking down loan portfolios in certain sectors, including software. This, in turn, has reduced the borrowing capacity of private credit funds, triggering a deleveraging cycle.

Market participants are increasingly wary that this negative feedback loop could spread across the broader financial system. Private credit, while based on illiquid assets, allows for quarterly redemptions, meaning that concentrated withdrawal demand can simultaneously trigger asset sale pressure and price declines. Michael Hartnett, chief investment strategist at Bank of America, noted that “current market conditions resemble those between mid-2007 and mid-2008,” warning that “if redemption pressure accumulates in the absence of a stabilizing force, risks could extend beyond individual funds to the system as a whole.”