Recent redemption gates and stress in parts of private credit have sparked warnings of a broader private markets reckoning. But many of the developments driving those concerns relate to what I see as a specific niche of private credit: US direct lending to sponsor-backed, middle-market software companies.
Last year, Mark J. Higgins, CFA, argued in Enterprising Investor that private credit showed serious “red flags,” though he stopped short of calling it a bubble. More recently, he suggested that redemption gates and market stress signaled that “the music has stopped” in private markets. I disagree. While parts of direct lending are clearly under pressure, I do not believe current conditions amount to a systemic crisis across private markets.
Higgins’s earlier argument rested in part on the idea that private credit had not yet entered full bubble territory because large banks had not returned aggressively to direct lending. In his more recent piece, he pointed to redemption gates, market volatility, and stress in parts of the SaaS sector as evidence that conditions in private markets have turned, with a broad unwind underway.
Recent market activity suggests a more nuanced picture. In the weeks following the latest wave of concern around private credit, several large private market firms continued to access capital markets and issue debt successfully, including investment-grade offerings that attracted strong demand.
Pimco bought the entire $400 million bond issued by a leading private credit BDC at par, pricing the underlying loan book as fully sound, the private credit arm of a large bank raised $750 million in investment-grade notes, at spreads tighter than initial price talk, and a third flagship private credit fund’s bond raise was five times oversubscribed.
And this is just private credit. In the private equity space, SpaceX has filed a confidential S-1, targeting a valuation of $1.5–1.75 trillion, with an investor selling a stake worth $10 billion at a $1.25 trillion valuation just recently. In addition, OpenAI is rumored to be preparing to go public this year or next.
That, of course, does not mean liquid markets are underperforming – and why should they? The S&P 500 closed April at an all-time high, with Q1 2026 earnings showing 27.1% year-over-year growth, the highest since Q4 2021, with 84% of reporters beating EPS estimates.
The Magnificent Seven delivered 61% earnings growth, three times what analysts had forecasted. AMD's data center revenues rose 57%. Samsung crossed $1 trillion in market capitalization, the second Asian company to do so after TSMC, pushing South Korea's Kospi to an all-time high. The Nikkei has been up more than 20% since the start of the year, and the MSCI Asia Pacific rallied roughly 11% in a single month. The Nasdaq logged its longest winning streak since 1992.
To close the loop with private credit, publicly listed hyperscalers committed $725 billion in AI infrastructure capex for 2026 — up 77% from the prior year. This may be a boon for private infrastructure, both equity and debt.
To be clear, this was never about pitting private markets against public markets. It would not be advised for most investors to hold a portfolio exclusively allocated to private market investments. And despite higher fees, there is no reason retail investors should not explore active products through professional managers. It is simply a question of how much active versus passive exposure they should be comfortable with, but that is a matter of education and risk tolerance.
It is also hard to deny that private credit, especially direct lending, has been under some stress. Bad PIK — payment-in-kind interest added during the life of a loan – has potentially risen. That is a genuine stress indicator. Some retail capital is leaving. Goldman Sachs estimates the wealth channel may shed $45 billion to $70 billion over two years.
While direct lending to sponsor-backed software companies was a winning formula for much of the past decade, the model has come under pressure as AI disruption has called into question long-term growth assumptions across parts of the sector. Beyond this segment, however, private credit spans a far wider universe: structured credit, asset-backed finance, real-asset lending secured by aircraft and infrastructure, and convertibles.
Europe, and now Asia, are attracting increasing amounts of capital amidst clear funding gaps due to risk-averse banking systems and over-regulation. A well-constructed multi-strategy portfolio, where no single sector exceeds 5% of exposure, may be only marginally impacted even by a structural shift such as the rise of artificial intelligence.
More generally, when you extrapolate from gated semi-liquid retail vehicles to the collapse of private markets as a whole, you are prey to a well-known heuristic. Research on geopolitical shocks and investor decision-making shows that analysts and investors alike tend to reach for the most dramatic historical precedents (the 1907 trust company panic and the global financial crisis), rather than the more numerous and more probable mundane outcomes.
The GFC comparison fails on its own structural terms. The 2007 to 2009 crisis was a funding-mismatch catastrophe: overnight asset-backed commercial paper financing illiquid mortgage assets, with 30x to 40x leverage and no transparency. Today's private credit is senior secured floating-rate lending, 1x to 1.25x leverage at the BDC level, with quarterly gating that functions as the lender-of-last-resort.
Moreover, gating is a feature of private markets, not a bug. The gates are not evidence of systemic failure; they are the mechanism working exactly as designed, preventing forced sales at the worst moment. Long-term investors deliberately accept this illiquidity in exchange for a premium.
Private credit has a concentration problem in one segment, a temporary redemption management challenge in one product type, and a sentiment problem in one distribution channel (retail investors). It does not have a systemic solvency problem or a funding-mismatch crisis. Preqin's November 2025 survey found that 81% of limited partners plan to hold or increase private credit commitments. The asset class is on track to reach $4.5 trillion by 2030.
Private markets are less standardized, with more bespoke risk-return drivers, and a greater emphasis on manager selection and underwriting skills. They are an investment universe, not an asset class, and because of that, they are not correlated.
The problem is that private markets have only recently stepped into the public discourse, and the conversation has not yet caught up with the complexity they demand. Financial journalists, for the most part, approach them with scant knowledge and a public markets mindset, reaching for familiar frameworks that simply do not apply. Volatility, liquidity, and daily pricing are largely beside the point in private markets, yet they remain the default lens.
Practitioners bear some responsibility too: the industry has long been guilty of speaking to itself, wrapping straightforward concepts in layers of alienating jargon.
The result of this mismatch is that retail investors, bombarded with half-formed narratives and sensational headlines, are left poorly equipped to evaluate the opportunity. Professional investors, who know more have little incentive to correct the record. And panicky headlines that claim "the music has stopped” or "the bubble is bursting" do far more to stoke anxiety than to illuminate reality, leaving the very investors who might benefit most from private markets on the sidelines.
Alfonso Ricciardelli, CFA, is a co-editor of CFA Institute Research Foundation's An Introduction to Alternative Credit.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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