Several questions regarding risk events in the US private lending market

【Editor's Note】We have received many questions from investors in the past two days regarding the risks in the US private lending market. We have compiled them into the following four questions and attempted to offer some thoughts for your reference.

Question 1: What happened in the private lending market?

Question 2: Why is there so much redemption pressure in the private lending market recently?

Question 3: If the private lending market really collapses, will it trigger a financial crisis similar to the 2008 subprime mortgage crisis?

Question 4: So what are the risks?

Question 1: What happened in the US and European private lending markets? The recent private lending (PC) market has been plagued by bad news, mainly due to the redemption wave in the first quarter and some heterogeneous risk events.

1) The BlackRock Incident

On March 6th, Bloomberg reported that BlackRock's HPS fund (HLEND, NAV approximately $13 billion, total assets approximately $26 billion) received approximately $1.2 billion in redemption requests in Q1, representing 9.3% of the fund's total assets, thus triggering the 5% quarterly redemption cap. Ultimately, BlackRock chose to strictly adhere to the contract, only paying out $620 million (5%).

Note that this 5% redemption threshold was already specified in the contract and is a very common clause in PC products.

Note that this 5% redemption threshold was stipulated in the previous contract and is a very common clause in PC products.

The reason is that PC's asset side holds medium- to long-term, less liquid loan assets, so it must ensure that the maturity of assets and liabilities matches, and it cannot meet redemption requests at any time like banks or equity funds. Therefore, this matter itself is not "illegal", but it is another reflection of the redemption wave in the entire private lending market since the end of last year. 2) Blackstone Incident On March 2, Blackstone Private Credit Fund (BCRED, NAV approximately 48 billion, total assets approximately 82 billion) announced that it had encountered 7.9% (approximately) redemption requests in the first quarter of 2026. In theory, BCRED's quarterly redemption threshold is also 5%, but unlike Blackrock's approach, it raised the threshold to 7% through a tender offer (which is the maximum redemption amount allowed by the contract). Additionally, Blackstone executives jointly injected $400 million to buy 0.9% of the fund's shares from other investors at NAV, satisfying the remaining redemption requirements. Blackstone explicitly stated that this action was not due to insufficient liquidity, but rather to meet contractual requirements—BCRED had $8-10 billion in available liquidity on its books. Furthermore, the market believes that Blackstone's increase in the redemption threshold was also to protect fragile market sentiment and the company's brand.

3) The Blue Owl Capital Incident

From February 18th to 20th, Capital Corporation II (OBDC II, NAV approximately $1.6 billion), a subsidiary of Blue Owl Capital, one of the top ten alternative investment firms in the United States, announced a permanent freeze on quarterly redemptions of its funds due to immense redemption pressure and the previous failure of its merger with the listed BDC. Instead, it opted to gradually liquidate assets and repay customer funds. Furthermore, reports indicated that Blue Owl Capital failed to provide a loan to CoreWeave's $4 billion data center, exacerbating market concerns. 4) MFS Bankruptcy On February 20th, MFS, a well-known British bridging loan company, announced it had entered bankruptcy administration. This was a non-bank mortgage lender headquartered in London's Mayfair district, primarily engaged in complex bridging loans, with a total loan amount of approximately £2.4 billion. It is important to note that the root cause of its bankruptcy was suspected fraud (multiple mortgages using the same collateral) rather than simply the deterioration of the underlying assets. In terms of risk exposure, MFS obtained over £2 billion in financing through institutions such as Barclays, Apollo, Jefferies, and Santander. Barclays provided the largest amount (approximately £500 million), Apollo Atlas approximately £400 million, and Jefferies approximately £100 million. Question 2: Why is there so much redemption pressure in the private lending market recently? There are at least five reasons. Firstly, the industry's risk control capabilities were questionable due to rapid growth in previous years. In recent years, due to tightened banking regulations (Basel III endgame increased capital requirements) and the low-interest-rate environment in the first two years after the pandemic, a large amount of capital flowed into the PC market, resulting in explosive growth (annual compound growth rate exceeding 20%). Currently, the total size of the PC market in the United States is close to US$2 trillion (statistics vary depending on the source). Relatively lenient lending standards (such as the rising proportion of covenant-lite loans), a lack of transparency and highly customized terms, and the widespread use of PIK clauses (11% of loans in Q4 2025 contained PIKs, a significant proportion of which were so-called "bad PIKs" added midway through the loan process) all increased credit risk. Furthermore, PCs are primarily based on floating interest rates (95%), and the rapid interest rate hikes by the Federal Reserve after 2022, while increasing borrowers' interest burden, made them more sensitive to downward economic pressures. Figure 1: Size of PCs in the United States PCs rely on subjective models rather than secondary market pricing, with valuations provided by the fund manager (usually assessed quarterly by a third-party valuation agency). When publicly traded credit asset prices fall, the net asset value (NAV) of PC funds often lags behind. As a result, when a fund unilaterally lowers its NAV or significantly writes down specific loans, investors lack the ability to verify its true value, easily leading to "redemption first, inquiry later" behavior. Thirdly, the liquidity structure becomes a double-edged sword. In the past two years, semi-liquid unlisted funds like BCRED and HLEND, or listed BDC funds similar to OBDCs, have seen massive growth in size. Their advantage is that they offer much better liquidity for investors than traditional closed-end funds (the former allows for fixed-amount redemptions every quarter, while the latter can be traded on the secondary market at any time). However, their disadvantage is that redemption pressure and secondary market prices are completely transparent, making it easy for panic to spread and be amplified. Figure 2: Financing Scale of Semi-Liquidity vs. Closed-End PC Funds Fourthly, even professional investors find it difficult to distinguish between different segments of the credit market. For example, recently we've seen some default events that have little to do with PCs being labeled as "private lending market defaults," thus triggering redemption pressure. For instance, First Brands, which went bankrupt last October, primarily relied on syndicated loans (BSL), while another bankrupt company, Tricolor, mainly depended on ABS. Fifth, concerns about the technology sector have spread to the private lending market. The technology sector is a significant exposure to the PC market, typically accounting for 15%-20%. Since Q4 of last year, market concerns about AI technology disrupting the traditional SaaS business model and the unsustainability of the cash-burning model under high interest rates have intensified, further fueling market anxieties about PCs. For example, in February 2026, private lending stocks experienced several sharp single-day drops due to concerns about the software industry. In recent investor conference calls for various PC or CLO products, "How much exposure do you have to SaaS companies?" has been the most frequently asked question. It's worth noting that there is no single, universally accepted metric for accurately measuring the default rate in the PC market. This is because different institutions define default differently (does it only count payment defaults, or include breaches of contractual terms, or PIK conversions?), and loan contracts are mostly not publicly available, leading to significant differences in the samples available to different institutions. However, if we consider several major default rate indicators (Proskauer, Fitch PCDR, KBRA DLD, Lincoln Shadow Default Rate), the default situation since 2023 has shown a trend of "a continuous, moderate but controllable increase, with some localized deterioration." Among them, the deterioration was relatively more pronounced in medium and large enterprises, medical services, and retail. Question 3: If private lending truly collapses, will it trigger a financial crisis like the one in 2008? We believe the possibility is very low. Firstly, from a long-term perspective, crises triggered by real estate are the "king of crises." Almost without exception, severe financial crises in human history (such as the Great Depression and the 2008 global financial crisis) originated from debt-driven real estate crises (Jorda, Schularick, and Taylor, 2015). In contrast, the macroeconomic destructiveness of financial risk events not triggered by real estate is often overestimated. For example, the collapse of LTCM in 1998, the US savings and loan crisis of the 1980s (thousands of savings and loan institutions went bankrupt), and the collapse of Silicon Valley Bank in 2023 all only triggered a temporary slowdown in the economy and increased market panic, but did not trigger a recession, let alone a financial crisis (the 1990 recession was actually caused by the surge in oil prices triggered by the Gulf War). Secondly, the market size and diffusion are limited. In terms of market size, although the scale of private lending has reached 2 trillion, it does not have a broad derivatives market, and its leverage ratio is not high (around 1). In contrast, the scale of commercial real estate loans that caused market concerns in 2022-23 was approximately 4 trillion (flow of funds data), while the subprime mortgage crisis in 2007, although only 1 trillion in size, had a real exposure of financial institutions of tens of trillions of dollars when combined with derivatives such as CDOs and CDS. The 2023-2024 U.S. commercial real estate (CRE) crisis provided an excellent stress test. At that time, office vacancy rates soared, and commercial real estate giants like Blackstone BREIT triggered foreclosure limits for several consecutive months from 2022 to early 2024; Brookfield defaulted on multiple properties; and New York Community Bank (NYCB) saw its stock price halved due to CRE bad debts. However, in hindsight, the impact of these individual events on the macro level was relatively limited. Third, there is no death spiral mechanism of "bank runs" and "firesale" in the traditional sense. From a micro perspective, on the one hand, PC investors are mainly pension funds, insurance funds, and high-net-worth individuals, with long-term capital characteristics. Moreover, PC funds are mostly closed-end or semi-liquid structures with strict redemption limits. On the other hand, the 2008 crisis stemmed from the fact that the shadow banking system (dealer banks, CDOs, etc.) heavily relied on short-term financing such as overnight repurchase agreements (Repo) and had to be marked to the market daily. Once asset prices fell, it would trigger margin calls, forming a death spiral of "asset price decline - overnight financing difficulties - asset sell-off - further asset price decline" (Gorton and Metrick, 2012; Brunnermeier and Peterson, 2012). (2009). PCs do not rely on short-term financing and use model-based pricing; this asset-liability matching naturally breaks the contagion chain of liquidity crises. In fact, CLOs, which have relatively worse liquidity, performed better than CDOs during the financial crisis (Cordell et al, 2021). Furthermore, looking at high-rated RMBS in 2008, the actual default rate was far lower than the default level implied by market prices at the peak of the crisis (Ospina and Uhlig, 2018). Fourth, the banking system has the ability to "fill in the gaps." The Trump administration's current lenient regulatory measures are expected to increase banks' willingness to participate in future lending. This means that even if some aggressive private lending institutions experience risk exposure or exit the market, the traditional banking system with healthy balance sheets has the capacity and incentive to quickly fill the credit vacuum. Looking back at history, during the savings and loan crisis of the 1980s, non-bank financing, represented by high-yield bonds (junk bonds), rapidly emerged, effectively offsetting credit contraction and limiting the extent of market concerns about a "credit crunch." Question 4: So what are the risks? Any recession/crisis is the result of a series of coincidences. While we are not concerned about systemic risks in the private lending market itself, given the current macroeconomic environment rife with both unexpected risks and potential threats, we need to be wary of the escalating US-Iran conflict leading to an unexpected surge in oil prices, forcing the Federal Reserve to tighten monetary policy a second time. This could exacerbate downward pressure on AI-related stocks and the private lending market, potentially triggering a synchronized economic downturn.