Private credit funds processed $20 billion in redemption requests during the first quarter, the highest quarterly figure on record, even as the same managers raised fresh capital at a pace not seen since 2022. Direct lending activity fell sharply in the same period, leaving the industry with a widening gap between what it can raise and what it can responsibly deploy.
The redemption wave hit firms across the spectrum. Blue Owl, Blackstone, and Apollo—managers controlling roughly $600 billion in private credit AUM combined—saw outflows concentrated in their interval and tender-offer structures, the vehicles designed to offer quarterly or semi-annual liquidity windows. Software-backed credits accounted for a disproportionate share of the markdown activity that preceded redemptions, with several portfolios adjusting NAV downward by mid-single-digit percentages in February and March. Meanwhile, second-quarter direct lending volume dropped 28% sequentially, even as the same firms closed $18 billion in new fund commitments during that period.
This matters because the redemption pressure is not a liquidity crisis—it is a repricing event inside a market that has spent five years avoiding one. Private credit expanded from $800 billion in AUM in 2019 to roughly $1.7 trillion today on the premise that illiquidity premiums would compensate for mark-to-market lag and that sponsor demand for non-syndicated debt would remain inelastic. Both assumptions are now being tested. Software multiples compressed throughout 2025, and the handful of names written down in Q1 were financed at 6x to 7x EBITDA in 2022 and 2023, when the bid for anything with recurring revenue was still intact. The markdown cycle has only begun. Allocators who entered private credit in 2021 and 2022 are now receiving NAV statements 4% to 7% below peak, and the industry's historical pattern is that markdowns arrive in waves, not all at once.
Operators should watch three specific pressure points over the next two quarters. First, interval fund gates—most structures allow managers to limit redemptions to 5% of NAV per quarter, and several large funds are already at or near that threshold. Second, the repricing of $340 billion in private credit paper tied to software, healthcare IT, and business services, sectors where EBITDA multiples have contracted 15% to 25% since late 2023. Third, the deployment drought—if managers cannot put capital to work at attractive spreads, the IRR math that justified their fee structures begins to erode, and LPs will redirect commitments to liquid credit, where all-in yields on BB paper now sit near 8%.
The forward-looking fact is that private credit is entering its first full credit cycle with $1.7 trillion in AUM and a LP base that includes insurance companies, pension funds, and wealth platforms, none of which have stress-tested their exposure at scale. The markdown data from Q1 is partial, covering fewer than 40% of reporting funds. The rest will surface in second-quarter letters, due in August.