By Micah Morris, Investment Analyst:

It has not been a good past six months for private credit. Last September, several portfolio companies financed by private credit, most notably First Brands and subprime auto lender Tricolor Holdings, filed for bankruptcy, drawing attention to credit quality concerns and prompting investor discussion about risk concentrations and stress in loan books. This might have been the snowflake that started the avalanche.

Q4 2025 ended up having the most withdrawal requests ever seen from individual investors to cash out of their evergreen private credit funds. Most notably, Blue Owl received redemption requests for about 15% of their shares, up from the 2% they received in Q3. This is not a segmented event either: Blackstone’s private credit fund, BCRED had redemption requests of 7.9% from less than 2%, Ares was at 6% from their normal .5%, Blackrock requests were up to 4.5% from less than 2%, and Apollo also experienced 6% requests from their normal 3%. The total amount of money pulled out was upwards of $7bn, in only 3 months.

Just this past month, Blue Owl PERMENANTLY halted quarterly redemption requests, opting instead to return capital through episodic distributions funded by asset sales. This highlights previous points made about liquidity mismatch risks in private credit outlined in our musing last month. We are not the only ones with a strong opinion on the matter. Economists across the globe warned that the decision to freeze withdrawals could be reminiscent of early stress signals seen prior to the 2008 financial crisis. Specifically, the 2007 BNP Paribas fund freezes.

If you have the same thought process as I do, you might also ask the question: Evergreen private credit funds seem to have a lot of similarities to what looks like a Ponzi scheme. NAV can be driven up by new investors buying into the fund, and now it looks like there is not enough money to pay out the investors who want to exit. Am I getting paid out only with other investors’ money? The short answer, no. Private credit funds are not Ponzi schemes by structure, but they do contain liquidity dynamics that can resemble one under stress. The key difference is whether returns come from real underlying assets or new investor money.

A Ponzi scheme has no real income producing assets and pays “returns” when new investors enter. Evergreen private credit funds own real loans to middle-market companies and earn contractual interest income. The similarity comes from the fund’s ability to raise new capital to fund new loans and provide liquidity to prior investors. This means when you submit a redemption request, you are paid out true returns (principal + accrued income), but being that this is an illiquid vehicle, this is often possible through new investor inflows. The fund is not creating returns from new investors; it uses inflows to avoid selling illiquid assets.

I also want to point out the distinction between evergreen credit funds and close-ended private credit funds. Evergreen funds are set up so that there is no predetermined liquidation date. In contrast, close-ended funds have a defined investment period and a set end date, with capital returned upon realization of assets, like a traditional private equity fund. Having a set end date somewhat solves this illiquidity dilemma. Because capital is locked up for a defined term, the manager does not need to manage ongoing subscriptions or redemptions and can remain fully invested without maintaining liquidity buffers. This better aligns the fund structure with the inherently illiquid nature of private credit loans.

The Bottom Line:

Private credit is not inherently broken, and it is not a Ponzi scheme. But structure matters, especially when liquidity expectations collide with illiquid assets. The past six months have exposed a fundamental tension within evergreen private credit vehicles. When inflows are steady, the system appears stable. But liquidity in these structures is conditional on manager discretion and market environment. When redemption requests accelerate, the underlying constraints become visible.

This does not mean private credit has no place in portfolios. It does mean investors need to understand what they own, how the vehicle is structured, and how it is likely to behave during periods of stress. In environments like this, clarity around liquidity, manager discipline, and position sizing matters more than chasing incremental yield.

At Segment, we prioritize our core pillars of Simplicity and Transparency over unnecessary complexity. Private credit can play a role in portfolios. But the wrapper matters. Expectations matter. And the conversation around both needs to be honest.

Read More: The Illusion of Calm in Private Credit

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