Investors ditch private credit funds on rising worries over bad loans

Investors are rapidly withdrawing from private credit funds amid escalating concerns over non-performing loans, signaling broader financial instability in shadow banking sectors. Publicly traded credit vehicles now trade at record discounts—some exceeding 20%—reflecting eroded confidence in asset quality and liquidity risks as default rates climb. The pullback marks a sharp reversal from 2021–2024’s boom, when low interest rates fueled aggressive lending; rising benchmark rates have since exposed vulnerabilities in overleveraged portfolios. Analysts warn the selloff may spill into mainstream markets, pressuring banks with exposure to private credit and triggering tighter lending conditions for mid-market borrowers. Regulators are monitoring contagion risks, with stress tests underway for funds holding high-yield corporate debt and distressed real estate loans.