Panic is spreading 'like a disease' through the global economy as a $2.5 trillion industry is in meltdown, trapping $3 billion of cash in Australia and potentially putting your super at risk.
The private credit industry, worth $2.5 trillion globally, has been rocked by a crisis as major players in the sector have started severely limiting how much cash can be taken out of their funds.
Private credit is used by businesses to access funds when they cannot access it from a traditional bank. Since the GFC, regulators have forced normal banks to follow incredibly strict rules about who they can lend to. If a business is deemed too risky, too indebted, or just needs money faster than a bank can approve it, they turn to private credit funds.
These funds are giant pools of cash managed by elite investment firms like Blackstone or Apollo. They get their cash from ultra-wealthy individuals, institutional investors, and Australian super funds looking for big returns.
Escalation of the Crisis
The crisis that has been bubbling away since the start of the year escalated overnight as one of the sector's major players, Blackstone, severely restricted withdrawals from its $45 billion private credit fund.
'The disease is spreading across private markets asset classes,' said Pierre-Yves Gauthier, CEO and head of strategy at AlphaValue.
Impact on Australian Super Funds
Australian investors have been caught up in the panic as $3 billion of cash has been trapped, and fears spread about the impact on the nation's 17 million super holders.
The corporate watchdog ASIC has sounded the alarm as the nation's major superannuation funds have been aggressively pulling billions of dollars out of traditional investments to chase the high returns promised by private credit.
Director Michael Bracken said there had been a rapid expansion in Australia's private credit market over the past 18 months. He said the boom was driven by the increasing size of Australian superannuation savings focused on seeking investment diversification and yield, moderation in bank lending to higher-risk real estate ventures, and increased retail investor participation through 'evergreen' and exchange-traded investment products.
'Domestically private credit funds remain a primary growth driver in lending, accounting for about 70 per cent of loans outstanding,' he said.
Bracken said ASIC was keeping a close eye on the situation because of what was happening to the sector globally in recent months. 'Recent offshore failures, particularly involving private credit fund exposure to AI disruptors via software investment, reveals structural weaknesses in private credit and potential contagion risk through insurers, banks, and hybrid funds,' he said.
'Recent disclosures that an Australian credit fund holds significant exposure to a collapsed UK lender are a timely reminder that these risks are globally interconnected and capable of transmitting quickly into domestic markets.'
Partners Group Restricts Withdrawals
Aussie investors have already been hit by the crisis after Switzerland's Partners Group restricted investor withdrawals from its flagship private equity fund. Partners Group on Wednesday told Australian investors, who have about $3 billion in its Global Value fund, that it would limit withdrawals to 5 per cent this quarter.
The Global Value fund launched in Australia more than a decade ago and is widely held across the local wealth management sector. Investors who put their sell requests in before the March 30 cut-off are expected to get back 62 per cent of the money requested, but those looking to pull their money out from late April onward could get nothing, the fund warned.
'The last few years have proven challenging for private markets. This period has been characterised by significant macroeconomic shifts and geopolitical challenges,' the letter sent to investors, and seen by The Australian, said.
'Volatility in open-ended evergreen fund flows across the industry has been building since late 2025, beginning in private credit vehicles. These flow dynamics have recently accelerated and extended to the private equity asset class, impacting the underlying fund,' the company said, as it detailed how it would limit withdrawals in the coming months.
Blackstone's Bombshell Move
Concerns about private equity deepened overnight as one of its biggest players, Blackstone, said it would limit withdrawals from its flagship private credit fund after investors attempted to pull out $4.5 billion in the second quarter of this financial year.
The cap follows similar decisions by rivals like BlackRock in March, and by Partners Group on Wednesday. Fears that private lenders are overexposed to software companies, which could be disrupted by AI, have prompted investors to ask for their money back.
Investors in the BlackRock fund sought to redeem 10 per cent of their shares in the second quarter, the company said, rising from the first quarter. It said it would restrict redemptions from the $79 billion fund to five per cent in the second quarter.
Financing through private credit has risen significantly in recent years, raising worries about a sector much less regulated than conventional banks. Some of the private credit funds receiving outsized redemption requests have financed software companies seen as risky bets in light of advances in artificial intelligence. More recently, investors have been growing cautious over the prospects of lending to software companies.
This week, investment group Cliffwater also said it capped redemptions from a lending pool at five per cent after withdrawal requests hit 17 per cent in the second quarter. Others are expected to report their second-quarter redemptions soon, after withdrawal requests in the industry climbed in the first quarter.
In April, asset manager Blue Owl said it was capping its redemptions at five per cent after investors accounting for more than 20 per cent of shares in two funds sought payouts. Earlier this year, the US Treasury Department announced plans to hold meetings with domestic and international regulators focused on private credit markets. The Federal Reserve is also monitoring the sector.
