What the Private Credit Liquidity Crisis Reveals About Asset-Backed Investing

In the first week of March 2026, three of the biggest names in global finance hit the same wall within days of each other.

Blue Owl Capital permanently closed redemptions on its $1.6 billion private credit fund. Blackstone saw record withdrawal requests of $3.8 billion from its $82 billion flagship credit fund. And BlackRock capped withdrawals from its $26 billion HPS fund after investors tried to pull $1.2 billion, nearly double what the fund was willing to pay out.

BlackRock's stock fell 7% in a single day. Shares of KKR, Carlyle, Apollo, and Ares dropped 5-6%. The private credit sector, which had spent years positioning itself as a steady alternative to volatile public markets, suddenly looked anything but steady.

If you've been following our writing on private credit and asset-backed finance, you probably have a question: does this mean private credit is broken?

In short, the answer is no. However, this crisis reveals something important about which types of private credit hold up under stress, and which don't.

What actually happened?

On February 28, the US and Israel launched coordinated military strikes against Iranian nuclear and military targets. Oil prices surged above $119 a barrel. The S&P 500 dropped 2.34% in a single session. The VIX (the market's "fear gauge") spiked 31%.

That geopolitical shock arrived on top of a series of problems that had been building for months. Interest rates stayed higher for longer than most borrowers expected. Borrower interest coverage ratios (a measure of how comfortably companies can service their debt) dropped from 3.2x to 1.5x. Moody's reported that below-investment-grade loan defaults hit 5.5%, and some analysts warned they could reach 15%.

The combination of geopolitical panic and deteriorating credit quality triggered a rush for the exits.

Here's what happened at the three biggest funds:

Why did these funds struggle?

These withdrawals exposed three structural weaknesses in the way that many large private credit funds are built.

1. These funds lend based on balance sheets, not against assets.

The funds that gated withdrawals are primarily direct lending funds. They are loans to mid-sized companies, and the borrower's ability to repay depends on future revenue and cash flow. The risk of this approach is that, when economic conditions deteriorate, so does the borrower's ability to make payments.

BlackRock's HPS fund is a good example. In early March, the fund marked a $25 million loan to an Amazon storefront aggregator down to zero. At one stage, it was worth 100 cents. The next quarter, nothing. This was the second such write-down in consecutive quarters. This happened because the repayment of the loan was dependent on the company's future performance, not on recoverable collateral.

2. Semi-liquid structures create a mismatch.

These funds were structured as non-traded BDCs (business development companies) or interval funds. They marketed themselves as "semi-liquid," which means you could invest and withdraw quarterly, subject to caps.

The problem is that the underlying loans are not liquid at all. They're typically 3-5 year commitments to private companies. When too many investors want out at the same time, the fund can't sell its loans fast enough (or at a fair price) to meet redemptions. The only options are to gate withdrawals or sell assets at a loss.

This is a classic liquidity mismatch. The product promises more liquidity than the assets can deliver.

3. Retail investors behave differently from institutions.

Over the past few years, the big private credit managers have pushed hard to bring retail and high-net-worth investors into the fold. These funds raised billions from individual investors who had never held illiquid credit before. When headlines turned negative, those investors reacted the way retail investors tend to: they wanted their money back immediately.

Institutional investors (pension funds, endowments, insurance companies) generally have longer time horizons and are less likely to panic. Bringing retail money into private credit brought in capital that was structurally more flighty.

What does this have to do with asset-backed investing?

In our previous post on asset-backed finance, we explained how these structures work: instead of lending to a company and hoping it succeeds, you lend against specific assets that can be seized and sold if things go wrong. The loan is secured by real assets (equipment, vehicles, property, receivables, infrastructure), not just a company's business plan.

Before March, the distinction between direct lending and asset-backed lending might have felt academic. Now it is more tangible.

Here's why asset-backed structures respond differently to the kind of stress we saw in March:

The source of repayment is different. In direct lending, repayment depends on the borrower generating enough revenue and profit to service the debt. If the economy slows, revenue drops, and the company may struggle to pay. In asset-backed lending, repayment is driven by the underlying collateral. A pool of auto loans keeps generating payments regardless of what's happening in the Middle East. A solar installation keeps producing electricity. A fleet of trucks retains resale value.

Diversification works at the asset level. A direct lending fund might hold 50-200 loans to individual companies. If one fails, it can have a meaningful impact. An asset-backed structure might be secured against thousands of underlying loans or assets spread across different borrowers, geographies, and risk profiles. No single default is catastrophic.

Self-amortizing cash flows reduce duration risk. Direct lending typically involves "bullet" loans, where the borrower pays interest only, then returns the full principal at maturity. If markets are stressed when that bullet comes due, refinancing can be difficult or impossible. Asset-backed structures are typically self-amortizing: principal comes back gradually over the life of the loan, similar to how homeowners pay down a mortgage. Less capital at risk at any given time.

Loss rates tell the story. According to iCapital research, direct lending has historically seen loss rates around 100 basis points (1%). Asset-backed lending has seen loss rates of 10-20 basis points (0.1-0.2%). That's a fivefold to tenfold difference. The collateral cushion doesn't prevent all losses, but it dramatically reduces them.

The real lesson: structure matters more than labels

The March 2026 crisis isn't a story about "private credit" being broken. It's a story about specific structures failing under specific conditions.

The funds that struggled shared three characteristics:

• Heavy exposure to corporate direct lending (especially to software and tech companies)

• Semi-liquid wrappers around illiquid assets

• Large retail investor bases with short time horizons

Funds with different structures, backed by real assets, with locked-up capital that matches the duration of the underlying investments, had a very different March.

According to KKR's analysis of returns from 2017 to 2024, asset-backed finance strategies have an average correlation to other asset classes of around 0.60, compared to 0.79 for private credit more broadly. That lower correlation is what you want during a crisis. It means asset-backed strategies don't move in lockstep with corporate credit when things go sideways.

What investors should ask before investing in any private credit fund

This crisis has given investors a practical checklist. Whether you're considering a global fund or a local private credit opportunity, these questions now carry more weight:

What secures the loans? Is the fund lending against specific assets with independent valuations and conservative loan-to-value ratios? Is it lending to companies based on future cash flow projections?

What happens if I want my money back? Is the fund truly locked up (matching the liquidity of the underlying assets), or does it promise quarterly withdrawals that might not be honoured under stress? Counterintuitively, a properly locked-up fund can be safer than a "semi-liquid" one, because it won't be forced to sell assets at a loss to meet redemptions.

How concentrated is the portfolio? A fund that lends to 50 companies has a different risk profile from one backed by thousands of individual loans or assets. Concentration amplifies both upside and downside.

How are assets valued? The BlackRock write-down (from 100 cents to zero in 90 days) raised serious questions about valuation practices across private credit. Ask whether assets are independently valued and how often. Be wary of funds that mark assets at par for extended periods and then take sudden write-downs.

Who are the other investors? A fund filled with institutional investors who have long time horizons is less likely to face a redemption run than one filled with retail investors. This matters because other investors' behaviour directly affects your outcome.

What is the manager's track record during stress? Everyone looks good in a rising market. The question is what happened during the COVID shock, the 2022 rate spike, or now. How did the manager handle defaults and recoveries?

A South African perspective

For South African investors, there's an additional angle worth considering.

Much of the chaos in March occured in US-listed funds holding US corporate debt. The rand-denominated, asset-backed private credit space operates differently. Loans backed by South African equipment, vehicles, property, and receivables aren't directly exposed to the same dynamics that crushed HLEND.

That said, we're not immune. Global events affect the rand, our interest rates, and our economy. Companies that borrow do face economic stress. South African asset-backed credit is not risk-free. But the structural protections of asset backing (conservative loan-to-value ratios, tangible collateral, diversified asset pools) work regardless of geography.

If you're evaluating private credit opportunities locally, the same checklist applies. What secures the loans? How diversified are they? What happens in a downturn?

The bottom line

March 2026 was not a failure of private credit as an asset class. It was a failure of specific structures that promised liquidity they couldn't deliver, backed by corporate loans that deteriorated faster than anyone expected.

The crisis drew a clear line between two types of private credit:

• Direct lending to companies, where repayment depends on business performance and valuations can swing wildly.

• Asset-backed lending, where repayment is supported by tangible collateral, cash flows are self-amortising, and loss rates have historically been a fraction of direct lending.

For investors, the takeaway is not to avoid private credit. It's to understand what kind of private credit you own. Ask what secures it, how it's valued, and what happens when markets panic. Those answers are the difference between a fund that gates your money and one that keeps paying.