Private Credit and the Wrong Side of the Balance Sheet

Prominent loan defaults in the US, concerns about the impact of artificial intelligence on software companies, billions of dollars in cash outflows from individual funds and redemption restrictions on some of the best-known private credit vehicles have recently put pressure on the market.

But why did redemption applications and liquidity pressure tend to occur in parts of the American private credit market, while comparable developments in Europe have so far largely failed to materialize?

But perhaps part of the answer is not on the asset side, but on the liabilities side. To be more precise: by the owners of the loans, i.e. the investors.

Anyone who observes capital markets usually looks for the cause of crises in the assets themselves.

But some market distortions are caused less on the assets side than on the liabilities side of the balance sheet.

In the past, open-ended real estate funds rarely came under pressure because the buildings lost value overnight. Rather, the combination of long-term real estate investments and short-term liquidity expectations of investors became problematic.

Recent developments in private credit raise the same question:

How much risk is actually in the asset – and how much in the investor?

The question is now also being discussed within the industry. The CAIA Association explicitly described the recent upheavals as a sales, education and structural problem ("wrapper problem") – but not as a credit problem.

This is because this shifts the discussion from the borrowers to the structure of the vehicles and their investor base.

Of course, there are differences on the active side.

The US markets, for example, have a significantly higher software exposure than Europe. The discussion about a possible AI-induced disruption of software companies therefore affects American loan portfolios more directly than many European strategies.

The market structure also differs. The American private credit market is larger, more mature and more competitive. Sector allocations, sponsor landscapes and underwriting standards are not fully comparable.

The assets page should therefore not be faded out prematurely.

Nevertheless, this alone hardly explains why the same headlines were processed so differently on both sides of the Atlantic.

Because the real question remains:

Why have there been redemption requests, liquidity pressure and significant market distortions in parts of the US private credit market, while similar developments in Europe have so far largely failed to materialise?

In the first quarter of 2026 alone, around 7.1 billion US dollars were withdrawn from eight large US private credit funds. Several prominent vehicles limited withdrawals or stretched out payouts.

Comparable developments have so far largely failed to materialize in Europe.

To understand this difference, it is worth taking a look at the ownership structure.

Perhaps the most important dividing line runs between the ownership structures in Europe and the USA.

The American market has opened up massively to private investors in recent years.

The assets under management of evergreen private credit funds rose to around $644 billion by mid-2025. At the same time, unlisted business development companies grew to almost 200 billion US dollars.

The asset class has long since ceased to be an exclusively institutional market.

In Europe, the investor base continues to be predominantly institutional. Insurance companies, pension funds, pension funds and other long-term investors continue to provide the majority of capital.

While the ownership structure in the USA is increasingly dominated by private investors, institutional investors continue to dominate in Europe.

Part of the difference between Europe and the US may therefore be less in the quality of the loans.

But in the fact that institutional investors process uncertainty differently than private investors.

Insurance companies and pension funds typically react to market distortions through allocation decisions, risk budgets and balance sheet management.

Private investors react more often via inflows and outflows.

• The crucial question for the private credit market is not only how risky the loans are, but at least as much how investors hold them and whether they manage them more through risk budgets or sentiment-driven.
• The assets page explains why the discussion about the private credit crisis arose.
• The liabilities side may explain better why it went the way it did.

• CAIA Association: Private Credit: Redemptions, Defaults and Wrappers, Oh My? (April 20, 2026)
• Reuters: Private Credit Roundup: Private Equity Catches a Cold (June 5, 2026)
• Reuters: Ailed Software Selloff May Pose Risk to U.S. Private Credit Market, Says Morgan Stanley (February 10, 2026)
• JPMorgan Private Bank: Private Credit Under the Microscope (2026)
• With Intelligence: Private Credit Outlook 2026
• With Intelligence: Private Credit Funds Surpass $500bn