The private credit party is over. Guess who's cleaning up?
- Robin Powell
- 59 minutes ago
- 12 min read
Wall Street is pushing private credit into retirement accounts as billions flee the sector. Financial historian Mark Higgins warns that ordinary investors aren't being invited to a party. They're being positioned as targets at the end of a speculative supply chain.
You know that feeling when someone offers you a deal that seems too good? A special opportunity, just for you, that the sophisticated buyers have somehow overlooked?
That's the pitch millions of investors are hearing about private credit. Higher yields than bonds. Smoother returns than stocks. Access to investments once reserved for institutions.
The word they keep using is "democratisation." As if Wall Street has discovered a passion for financial equality.
But here's what the sales materials don't mention. In the final months of 2025, investors pulled more than $7 billion from some of the biggest private credit funds on the market. Blackstone, Apollo, Blue Owl, Ares. The giants are all watching money walk out the door. One fund saw 15% of its investors head for the exits in a single quarter.
And it's not nervous retail investors running. The institutions that built these products are selling too. Yale's endowment, the model that inspired a generation of pension funds to pile into alternatives, has been looking to offload positions in the secondary market.
So why, at precisely this moment, is the industry so keen to open the doors to your retirement account?
The answer lies in understanding how financial crises get built. Not by villains in boardrooms, but by thousands of rational actors passing risk down an assembly line until it lands in the lap of whoever arrives last.
Seven billion reasons to pay attention
The exodus is real and accelerating.
In the fourth quarter of 2025, Blackstone's flagship $79 billion private credit fund received $2.1 billion in redemption requests. That's 4.5% of the fund in three months, up from 1.8% the quarter before. Ares saw 5.6% of its strategic income fund head for the door. BlackRock's HPS Corporate Lending Fund jumped from 1.6% to 4.1%.
These aren't normal numbers.
When Blue Owl's technology-focused fund faced redemption requests well above the standard 5% quarterly cap, the firm did something remarkable. Rather than enforce the limit and trap investors, they raised the threshold to 17% and borrowed money to pay people out. An Evercore analyst put it bluntly: "They are doing the exact opposite of what the product was designed to do."
Two high-profile collapses spooked the market. First Brands, an automotive parts supplier, filed for bankruptcy in September 2025 with liabilities estimated between $10 billion and $50 billion against assets of $1 billion to $10 billion. Allegations of fabricated invoices and missing funds followed. Then came Tricolor, an auto lender, with similar problems.
Jamie Dimon offered his assessment. "When you see one cockroach," the JPMorgan chief executive warned, "there are probably more."
Returns have been sliding for three years. Total returns from five of the largest private credit funds aimed at individual investors averaged 11.39% in 2023, dropped to 8.76% in 2024, and fell to 6.22% in the first nine months of 2025. As interest rates decline, so do yields on the floating-rate loans these funds hold. Dividend cuts have followed. More are coming.
The funds are still taking in more new money than they're paying out. For now. But the direction is clear. If this is such a great opportunity, why are so many people trying to leave?
"When you see one cockroach, there are probably more." — Jamie Dimon
Evergreen funds: what you're being sold
The products at the centre of this story go by a name that sounds reassuring. Evergreen. Like something that stays healthy through all seasons.
The reality is more complicated.
Traditional private equity or credit funds have a fixed life. Typically around ten years. You commit capital, the manager invests it, harvests the gains, and winds up the fund. You know when you're getting your money back because there's an end date.
Evergreen funds work differently. No termination date. Investors can subscribe on an ongoing basis. The fund reinvests proceeds rather than returning capital. The pitch is simplicity: no capital calls, no decade-long lock-ups, continuous exposure to private markets.
But "evergreen" doesn't mean liquid.
These funds typically limit redemptions to quarterly windows. Many cap withdrawals at 5% of shares outstanding per quarter. They impose notice periods. They reserve the right to suspend redemptions entirely when conditions get rough. When Blue Owl raised its cap to 17%, that was extraordinary. The standard playbook is to enforce the gates and make investors wait.
There's another problem. Because the underlying assets don't trade on public markets, nobody knows what they're worth. The fund manager estimates a net asset value using models and assumptions. This produces smoother reported returns, which looks great in a pitch deck. But it can mask what's happening underneath. The price you see isn't a market price. It's an opinion.
Evergreen funds have exploded in popularity. Assets have grown from around $50 billion in 2015 to more than $500 billion today. That growth hasn't come from institutions. It's come from wealth managers selling these products to their clients.
That should give you pause.
How a financial crisis gets built
The most dangerous crises aren't caused by a handful of villains. They're built by thousands of people doing what seems perfectly reasonable from where they're standing.
Mark Higgins has spent years studying this pattern. He's a financial historian, CFA charter-holder, and author of Investing in U.S. Financial History: Understanding the Past to Forecast the Future. In a December 2025 interview on Morningstar's The Long View podcast, he laid out a framework that should worry anyone being pitched private credit.
Higgins argues that systemic crises share three conditions. First, risk gets created in segments. Each station in the supply chain adds a bit more, but nobody sees the full picture. Second, incentives line up almost perfectly. Everyone benefits from keeping the assembly line moving. Third, there's a widely shared assumption that turns out to be wrong.
All three conditions are visible in private markets today.
Start with the supply chain. Institutional investors need returns, so they allocate to alternatives. Consultants advise them to do so because complexity justifies fees. Fund managers create products to absorb the capital. When traditional exits dry up, they invent new structures to keep money recycling. Wealth advisers sell those products to retail clients because commissions are attractive and the story sounds good. Trade publications write about the growth. Conferences get sponsored. Research gets funded.
Nobody is lying. Everyone is acting rationally according to their own incentives. And yet risk accumulates at every station.
Higgins uses a striking image. He compares the system to a rail gun, a weapon that uses perfectly aligned magnets to accelerate a projectile to devastating speeds. "The financial system has quietly assembled the equivalent of a financial rail gun," he recently wrote on his Substack, "and the projectile has exited the barrel."
Then there's the assumption. In 2008, it was that home prices would never fall nationally. Today, it's that private markets reliably deliver diversification and enhanced returns. Everyone believes it. The consultants say it. The fund managers say it. The trade associations say it.
But what if it isn't true?
The scariest part of Higgins' analysis isn't that someone is cheating. It's that nobody needs to cheat. The system produces dangerous outcomes all on its own.
"The financial system has quietly assembled the equivalent of a financial rail gun, and the projectile has exited the barrel." — Mark Higgins
How private credit returns are manufactured
Some of the returns you're being shown aren't real. They're accounting entries.
Jason Zweig exposed one of the mechanics in a June 2025 Wall Street Journal investigation. He looked at Hamilton Lane Private Assets Fund, a $3.6 billion vehicle that buys stakes in private equity funds on the secondary market. The fund's performance looked remarkable. Since September 2020, it had gained an average of 16% annually, beating the S&P 500 by nearly four percentage points a year.
Here's how it works. When you buy a secondary position, you often pay less than the official net asset value. Maybe the seller needs liquidity. Maybe they're worried about the portfolio. Whatever the reason, you get a discount. In 2024, the average discount on secondary deals was 11%.
Now comes the trick. Under current accounting rules, when a fund buys a secondary position at a discount, it can immediately mark that holding up to the official NAV. Not over time as the investment proves itself. Immediately. In one day.
Zweig found cases where this produced gains of 1,000% or more in a single day. Not from any change in the underlying business. From accounting.
Tim McGlinn, an investment veteran who writes about private assets, calls this "NAV squeezing".
It gets worse. Hamilton Lane changed how it charges performance fees. Under the old arrangement, the firm could only collect incentive fees when it sold a position at a profit. Under the new structure, approved by shareholders in March 2025, the firm collects fees on unrealised gains too. Paper profits. Estimates.
The result? Hamilton Lane collected $58 million in incentive fees it might otherwise have waited years to receive. If ever.
Zweig's assessment was blunt. "If you don't think they smell a little fishy," he wrote, "I suggest you make an urgent appointment with an ear, nose and throat doctor."
When funds need liquidity, the gap becomes visible. The few private market funds that have allowed exits through public offerings found buyers unwilling to pay anything close to reported NAV.
"If you don't think they smell a little fishy, I suggest you make an urgent appointment with an ear, nose and throat doctor." — Jason Zweig
We've seen this before
The pattern isn't new. Higgins has traced it through more than two centuries of American financial history. The 1810s. The 1830s. 1907. 1929. 1999. And 2008.
Each time, the same ingredients. Segmented risk creation. Aligned incentives. A shared belief that later proved false.
The 2008 crisis offers the clearest parallel. Mortgage originators relaxed lending standards to boost volume. Investment banks packaged those loans into securities. Ratings agencies blessed them with investment-grade ratings. Insurers like AIG wrote credit default swaps to make everything feel safe. Investors bought the products, trusting the ratings and insurance.
Each participant saw only their piece. The originator didn't know what happened after the loan was sold. The investment bank didn't track individual borrowers. The insurer ran models assuming housing prices would never decline nationally. Everyone acted on the same flawed assumption. Everyone had an incentive to keep the machine running.
The assumption underpinning private markets today is fragile. That alternatives reliably provide diversification. That they enhance returns. That they're insulated from forces governing public markets.
We have evidence on how this plays out. The S&P Indices Versus Active (SPIVA) Institutional Scorecard tracks professional managers with every advantage: scale, resources, access, full-time research teams. After fees, 80% of actively managed equity funds underperform their benchmarks over ten years. Even before fees, 72% of institutional equity accounts fail to beat the index.
These are managers in liquid, transparent public markets with real-time price discovery. What are the odds that opaque private markets, valued by models and sold with multiple layers of fees, will do better?
The smart money is heading for the exits
The story of how we got here starts with Yale.
David Swensen took over the university's endowment in 1985 and built one of the most successful institutional portfolios in history. He got into private equity and venture capital early, when the asset classes were small and competition thin. Declining interest rates and rising equity valuations gave him tailwinds for decades. He had exceptional access to top-tier managers. And he was brilliant.
When Swensen published Pioneering Portfolio Management in 2000, institutions noticed. The message many took away was simple: allocate to alternatives and get Yale-like returns.
They missed the fine print. Swensen's success depended on timing, talent, and access that couldn't be replicated at scale.
US public pension allocations to alternatives grew from around 9% in 2001 to more than 35% by 2024.
Trillions of dollars chasing the same opportunity. As capital flooded in, returns compressed. The edge disappeared.
Now the bills are coming due. Private equity managers can't exit their investments. According to the Wall Street Journal, roughly 30,000 companies are stuck in aged portfolios, waiting for buyers who aren't interested at current valuations. The whole model depends on selling assets to return capital and raise new funds. When that stops working, something has to give.
The solution has been to invent new structures. Continuation vehicles. Interval funds. Evergreen products. These let managers recycle assets without finding real buyers. Capital stays in the system. Fees keep flowing. But the underlying problem doesn't go away.
And here's the tell. The institutions that led the charge into alternatives are now looking to get out. Yale itself has reportedly explored selling positions in the secondary market.
Higgins was direct about what this means. "This is not the beginning of a cycle," he said in his Morningstar interview. "This is the end of the cycle. And what is typical of the end of the cycle is that retail investors are the targets."
You're not being invited to the private credit party. You're being asked to clean up after it.
The boring alternative that works
The appeal of private credit is easy to understand. Yields have been higher than bonds. Returns look smoother than stocks. There's something seductive about getting access to investments once reserved for the wealthy.
But the evidence points somewhere else.
Higgins highlighted a case study that deserves attention. Nevada's Public Employees' Retirement System manages more than $60 billion. For over 20 years, it outperformed between 89% and 98% of its peers. The approach? Simple. Low cost. No exotic alternatives.
Nevada PERS didn't chase the Yale model. It didn't layer on hedge funds and private equity. It stuck with a straightforward portfolio and kept fees down.
This shouldn't surprise anyone who's looked at the data. Decades of research point to the same conclusion. Complexity costs money. Fees compound against you. Most active strategies fail to justify what they charge.
What works is almost embarrassingly simple. A globally diversified portfolio of low-cost index funds. Quality bonds for stability. Regular rebalancing. Costs you can see and control. No gates. No redemption queues. No model-based valuations that might not reflect reality.
The irony is thick. The "democratisation" retail investors need happened decades ago. Jack Bogle created the first index fund for individual investors in 1976. Today you can own the entire global stock market for less than 0.20% a year. You can access your money whenever you want. The returns are real, verified by market prices every day.
That's not exciting. It won't make for good dinner party conversation.
But it works.
What to do now about private credit
If you don't own private credit, don't start. The cycle is late. Sophisticated investors are selling. The products being marketed to retail investors are designed to absorb assets that institutions no longer want. This isn't the ground floor. It's the clearance section.
If someone is pitching you private credit, ask three questions.
First: what are the total fees? Not the headline management fee. Everything. Performance fees. Fees charged by underlying funds. Transaction costs. Hamilton Lane's evergreen fund charges 1.5% in management fees plus up to 10% of gains. And that's before the underlying funds take their cut.
Second: what happens if I need my money back? Get specifics. How often can you redeem? What's the cap? Under what circumstances can the manager suspend redemptions? If the answer involves "quarterly windows" and "5% limits" and "manager discretion," understand what that means. In a crisis, you may not be able to leave.
Third: how are the assets valued? If the answer is "by models" or "by the manager," the returns you're being shown are estimates. Not prices someone paid. When real buyers show up, they often pay less.
If you own private credit, check your redemption options. Some funds are honouring withdrawal requests above their stated caps. Others aren't. If you can exit without severe penalty, consider whether the illiquidity premium justifies what you now know. If you're locked in, stop adding more.
For your core portfolio, the path is clear. Low-cost index funds. Global diversification. Bonds that trade on real markets. Rebalance periodically. Keep fees visible and low.
It's not glamorous. But the returns are real, the exits are open, and nobody is paying themselves bonuses on profits that don't exist yet.
The assembly line runs in one direction. Risk gets added at every station. By the time a product reaches the retail investor, it carries the accumulated weight of every decision made upstream. The institutions that built these positions, the consultants who recommended them, the fund managers who packaged them, the wealth advisers who sold them. Each acted rationally. Each took their cut. Each passed the parcel along.
You're standing at the final station now. The pitch sounds attractive. Exclusive access. Higher yields. Sophisticated strategies. But the pattern is clear if you're willing to see it. When $7 billion walks out the door in a few months, when funds borrow money to pay redemptions, when the smart money looks for exits, those aren't signs of opportunity. They're warnings.
The good news is you don't need what they're selling. The returns you need for a secure retirement are available in products that trade at real prices, charge minimal fees, and let you leave whenever you want. No gates. No queues. No accounting tricks.
Higgins ended his analysis with a line worth remembering. "The relentless sales pitches promising privileged access to private markets may make you feel attractive. But make no mistake. You're not a magnet. You're a target."
Now you know. Act accordingly.
Resources
Higgins, M. (2025, December 2). Interview on The Long View [Podcast]. Morningstar.
Higgins, M. (2025, December 23). Incentives are dangerously aligned in private markets. Financial History.
S&P Dow Jones Indices. (2025). SPIVA Institutional Scorecard: Year-End 2024.
Higgins, M. (2024). Investing in U.S. Financial History: Understanding the Past to Forecast the Future. Greenleaf Book Group Press.
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