Don't just focus on Iran; the U.S. private credit crisis is gradually repeating the "subprime mortgage crisis."

Don't just focus on Iran; the U.S. private credit crisis is gradually repeating the "subprime mortgage crisis."

While the market's attention is focused on geopolitical risks, a quietly spreading private credit crisis is rapidly fermenting within the US financial system. Redemption waves, asset sell-offs, fund gate closures—the script investors saw in 2008 is playing out again.

This week, BlackRock, the world's largest asset management company, announced limitations on redemptions by investors in its $26 billion HPS Corporate Lending Fund (HLEND), becoming the most impactful signal to date. Previously, Blackstone's private credit fund experienced a record 7.9% redemption request, and Blue Owl's stock price fell below its SPAC IPO price. Three private credit giants in succession reporting trouble—the gears of a vicious cycle are interlocking.

Meanwhile, Pacific Investment Management Company (PIMCO) warned in its latest client report: the direct lending industry is headed for a "full default cycle," and stress testing is inevitable. This conclusion comes from a long-term critic of private credit and carries significant weight.

The spread of the private credit crisis is directly reflected in the stock price performance of related publicly listed companies. Blue Owl's stock price fell below its SPAC IPO price, and the valuations of private credit businesses at Blackstone, BlackRock, and others are under pressure. The entire industry is facing a systemic reassessment of investor confidence.

Gating: BlackRock “Limits Redemptions” in its Private Credit Fund

According to a Wallstreetcn article, BlackRock issued a statement on Friday saying shareholders in its HPS Corporate Lending Fund (HLEND) applied to redeem 9.3% of shares, but fund managers set the buyback cap at 5%, about $1.2 billion.

BlackRock characterized this move as a "fundamental" liquidity management measure and stated that without limitations, there would be a "structural mismatch" between investor capital and the duration of private credit loans.

This language sounds calm, but the market understood its implications: if full redemption was honored, BlackRock would have to start a large-scale asset selloff.

Previously, another of BlackRock's private credit divisions sent an alarming signal—BlackRock TCP Capital Corp. in its Q4 report wrote down to zero a $25 million loan to Infinite Commerce Holdings, previously marked at par just three months earlier. From 100 to 0, in three months, without warning.

Spreading Wildfire: Vicious Cycles Triggered by Sell-Offs

BlackRock's gating is not an isolated event but the culmination—or perhaps new starting point—of a fuse already lit.

Three weeks ago, Blue Owl Capital took the lead.

Facing a flood of redemption requests (mainly from its highly concentrated software loan exposure, which is rapidly devaluing under AI disruption), Blue Owl announced a $1.4 billion sale of private credit loans to restore quarterly redemption mechanisms by modernizing assets, effectively freezing investor funds.

The company emphasized that the assets to be sold are all internally rated at the highest levels (level 1 or 2 out of five).

However, this “quality asset first” strategy is precisely an accelerator for the spread of the crisis. If secondary market buyers are only interested in high-quality assets, other BDC portfolios will face even thinner liquidity in sales. Reportedly, NMFC has indicated it is pushing to sell about $500 million of its portfolio (17% of its total investment as of Q3 2025).

Blackstone's situation is equally severe. Its BCRED private credit fund manages $82 billion, and this quarter’s redemption requests hit a record 7.9%, surpassing the legal cap of 7%. To avoid triggering gating, Blackstone employees were asked to purchase $150 million themselves to fill the gap.

Three institutions, three responses, but the same logic: gating or virtual gating to avoid forced sell-offs that would cause greater valuation collapses. Analysts note that BlackRock's gating itself already sends the strongest panic signal to the market, likely sparking more redemption races.

Blue Owl: Stock Price Falls Below IPO, Risk Exposure Continues

As the "epicenter" of this crisis, Blue Owl Capital's situation continues to deteriorate. Its stock price fell below its $10 SPAC IPO price this week, hitting a three-year low.

According to Bloomberg, Blue Owl holds a £36 million (about $48 million) exposure to London real estate lender Century Capital Partners Ltd.—a risk formed indirectly through its acquisition of Atalaya Capital Management in 2024.

Century applied for bankruptcy protection last month, with total debt around £95 million. NatWest Group and Hampshire Trust Bank are its senior creditors.

Blue Owl holds the highest-risk junior tranche in Century's loan portfolio. Century’s administrator RSM UK expects full recovery for senior loans, but the fate of the junior tranche is another matter.

This event underscores another side of private credit's expansion: asset-backed financing was once regarded by industry leaders as a new growth frontier. Executives from Pimco, Carlyle Group, Marathon, and Blackstone publicly favored this sector. Now, its risks are surfacing in unexpected ways.

PIMCO Warning: Full Default Cycle is Coming

As the private credit markets are roiled, PIMCO analysts Lotfi Karoui and Gabriel Cazaubieilh issued the most direct warning yet in their latest client report. They wrote:

"Like every mature segment of the leveraged finance market, direct lending will ultimately face a full default cycle—this cycle will test its resilience to industry-specific and macroeconomic shocks."

PIMCO was an early critic of private credit. As direct lending strategies ballooned in fundraising, the institution—which manages about $2.3 trillion—chose to go against the trend, actively seeking potential problems in companies supported by private credit.

PIMCO’s analysis points to several core risks:

First, record fundraising after the 2008 financial crisis led to increasingly lax underwriting standards;Second, direct lending portfolios’ highly concentrated exposure to the software industry will drag relative performance amid AI disruption;Third, direct lending funds have long failed to provide investors with adequate risk premium compensation for locking up liquidity.

Regarding the liquidity predicament faced by BDC investors, PIMCO’s wording is also blunt: "Semi-liquid does not equal fully liquid. Investors must assess their own liquidity needs and tolerance for restricted funds."

However, PIMCO also distinguishes between different segments inside private credit, believing asset-backed financing still offers investment value and "quasi-investment grade" risk levels. Last year, PIMCO raised over $7 billion for its asset-backed financing strategy.

Repeat of the Subprime Crisis?

The structural logic of this round of crisis is not complicated: semi-liquid products promise quarterly redemptions, but the underlying assets are long-duration private loans; when redemption applications exceed thresholds, managers must either gate or sell assets; sell-offs depress asset prices, triggering further markdowns and even more redemptions—a cycle is thereby formed.

This logic played out once in the 2008 subprime mortgage market. Back then, the initial crack also appeared in a corner believed “diversified enough, professional enough.” Today, private credit market size has reached $1.8 trillion, and the risk concentration, valuation opacity, and liquidity mismatch are being tested in similar ways.

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