You may have seen the headlines, but not totally understood what they were about.

BlackRock. Blackstone. Blue Owl. JPMorgan. Names that sound like law firms, or comic book villains, depending on your mood. They've been all over the financial press lately, and not for good reasons.

But unless you work on The Street, you may have no idea what private credit actually is, why it got so huge, or why it's now causing serious people to bite their nails.

Thanks to Rude subscriber Dave J. for asking about this. Private credit is an important piece of the financial puzzle.

Banks Used to Do This

Start with a simple idea. A company needs money. Maybe it's a mid-sized business: too big for a bank loan from your corner branch, but too small to sell bonds to the public. Historically, it went to a large bank. The bank reviewed the books, agreed on terms, and wrote the check. Simple.

Then came 2008. The financial crisis hit, and regulators decided banks had gotten reckless. New rules came in. Banks had to hold more capital in reserve. They had to be more careful about the kind of loans they made. As a result, banks started pulling back from lending to smaller, riskier companies. They had to. Thank your friendly neighborhood regulator for that.

It left a gap. And where there's a gap in the world of finance, someone fills it.

Enter private credit.

So What Is It?

Private credit is simply lending that happens outside the banking system. Instead of a bank issuing the loan, a private fund does. These funds are run by firms like the ones in the headlines: Blackstone, Blue Owl, Apollo, Ares, and others. They raise money from investors, such as pension funds, endowments, and wealthy individuals, pool it, and lend it to companies that can't get financing elsewhere.

Because the borrowers are riskier, the funds charge higher interest rates. A bank might offer a solid company a loan at 6%. A private credit fund might charge a shakier company 11%, 12%, or even more. That spread (the difference between the rate at which the credit fund funds itself and the rate at which it loans money) is the whole game. Investors in these funds are compensated with extra yield for taking on extra risk.

For a long time, it worked beautifully. From early 2023 to the close of January 2025, private credit and private equity stocks staged what may rank as the single biggest surge in the history of financial services, over a tight time frame. The industry ballooned.

By early 2026, the private credit market had grown to $2.1 trillion. That’s not a typo. Two trillion dollars in loans, sitting outside the regulated banking system, held by funds that don't have to report to the Fed the way your local bank does.

The Catch Nobody Talked About

Here's where it gets important for you, the reader.

When you put money in a savings account, you can take it out tomorrow. When you buy a stock, you can dump it in seconds. But private credit funds are different. The loans they make are illiquid. That means they can't easily be sold or converted to cash on short notice. The borrowers aren't publicly traded companies. There's no stock market for these loans.

So when investors put money into a private credit fund, they agree to leave it there, usually for quarters at a time. The fund might allow withdrawals once every three months, up to a certain percentage of total assets.

That sounds fine when times are good. Investors are patient when they're making money. But when confidence shakes, and people start to worry, everyone heads for the exit at once.

That’s precisely what’s been happening.

The Fire at the Door

Blue Owl was the first to feel it. In November 2025, it restricted withdrawals from its Blue Owl Capital Corp. II retail-focused private-credit fund. In February 2026, it announced plans to return up to 30% of net asset value of its fund.

Then Blackstone. Investors sought to withdraw $3.8 billion (7.9% of the fund's assets) from Blackstone's flagship private credit fund. The firm took the extraordinary step of raising $400 million from its own capital and its senior executives to satisfy all the requests. When a firm has to dip into its own pocket to repay its investors, that’s worth paying attention to.

Then BlackRock. BlackRock's $26 billion HPS Corporate Lending Fund received withdrawal requests worth 9.3% of its assets in a single quarter and paid out only 54% of what investors asked for. BlackRock, the world's largest asset manager with over $10 trillion under management, essentially told some of its clients: "You can't get your money back right now."

Morgan Stanley’s North Haven Private Income Fund got redemption requests for 10.9% of shares in its North Haven Private Income fund. Cliffwater, another major player, faced requests for over 7% of its flagship credit fund.

The market noticed. A historic selloff sent Apollo down 41%, Blackstone down 46%, and Ares and KKR each down 48%, while Blue Owl dropped by around 66%. The wipeout erased over $265 billion in market capitalization.

JPMorgan Lit the Fuse

So what actually triggered this panic? The answer involves a word you'll be hearing more: software.

In early March 2026, JPMorgan Chase, with billions in exposure to private credit funds, marked down the value of loans to software companies held in private credit portfolios and pledged as collateral to JPM.

What does that mean in plain English?

JPMorgan decided that loans made to software companies were worth less than they thought.

Why?

Because artificial intelligence (AI) is the main risk factor that’s starting to make some software businesses look a lot less valuable. If AI can do what your software does, faster and cheaper, your software company has a problem.

JPMorgan marked down certain private credit exposures to software companies, citing potential risks of AI-driven disruption.

This matters because software companies account for a huge share of private credit borrowers. Software companies accounted for roughly 30% of the leveraged buyout market and a corresponding share of total credit-financed business.

When JPMorgan said those loans were worth less, it forced other lenders to ask the same question about their own portfolios.

A Deeper Problem

There's another warning sign that had been quietly flashing for years.

So-called "paid-in-kind" loans, arrangements where borrowers roll unpaid interest into the principal rather than making actual cash payments, surged from 5% to 11% of private credit portfolios between 2022 and 2025.

Think of it like this: instead of the borrower paying you interest, they just add the interest to what they owe you. They're not paying. They're deferring. It's an IOU dressed up as income.

PIMCO president Christian Stracke attributed the current challenges to inadequate underwriting standards and insufficient transparency. In other words, lenders made the loans too loosely, and the books were too opaque to see the rot.

Wrap Up

You may not have money directly in a private credit fund. But you may be affected indirectly.

Pension funds invest in these products. If you have a pension through a state government, a union, or a large employer, there's a real chance some of it sits in private credit.

More broadly, U.S. banks extended nearly $300 billion in loans to private credit providers as of mid-2025. The two worlds, regulated banks and the shadow system outside them, are more connected than most people realize. Stress in one often bleeds into the other.

The good news is this is not 2008. The loans in question are to companies, not to millions of individual homeowners. There's no equivalent of a subprime mortgage crisis hiding in here… at least not yet.

But private credit spent a decade growing fast in the shadows, with less oversight, less transparency, and more risk than most investors fully understood. Now the lights are coming on.

As always, the time to learn something is before it becomes a problem.