The Gate Before the Storm

What the Private Credit Redemption Freeze in the U.S. Should Teach Indian Investors

In June 2026, the Financial Stability Report from the Reserve Bank of India featured a chart that went largely unnoticed. The chart “Retail Investors Look to Exit Private Credit Funds” used data from Blue Owl, Blackrock, and Blackstone to report on the behavior of investors. The Reserve Bank of India was observing Private Credit Funds. Many in the wealth management field were not observing Private Credit Funds. This disparity in observations between the regulators and the markets, is a large part of the story of Private Credit Funds.

Let’s first discuss what happened with Private Credit Funds. Requests for redemptions to Blue Owl’s primary business development company, OCIC, reached 21.9% of its total shares for the first quarter of 2026. This was more than four times the 5% quarterly limit for Private Credit Funds. Hence investors could redeem only 5% of their investment. Even in the subsequent quarter, requests to redeem shares were still at an impressive 18.8%. Blue Owl’s other entity, OTIC, faced a similar scenario with 40.7% of total shares being requested for redemption within the quarter, again subject to the 5% limit for Private Credit Funds. Blue Owl wanted to try something new in February 2026. Instead of letting investors withdraw their money from OBDC II, Blue Owl decided to return their money in a way managed entirely by Blue Owl. Investors now have no option to withdraw their money from OBDC II. Just to keep Blue Owl's business afloat, they also sold $1.4 Billion of loans from their 3 companies.

There was also an issue for BlackRock's HPS-run HLEND fund. More investors wanted to withdraw their money, and this number increased from 9.3% of shares in Q1 to 13.3% of shares in Q2. Not only did this exceed the 5% limit, but the number of withdrawal requests was also continuing to increase while the company was assuring investors of solid cash flow and good investments in the fund. Investors wanted to redeem their money regardless of the fund's good investments. Morgan Stanley's North Haven Private Income Fund only redeemed money for some investors and was subsequently affected. FS KKR Capital Corp also faced a 9.9% decrease in value in the first quarter of 2026, and it had to cut its dividend.

Not all companies handled the situation the same way, and Oaktree's Strategic Credit Fund is a good example. Oaktree's was able to fulfill all redemption requests and return every investors’ money. Requests had decreased quarterly, and the company had more freedom to increase payouts. BlackRock's HPS Corporate Solutions Fund had no issue with withdrawal requests. This situation is not indicative that private credit is failing. The companies that manage and defend capital during adverse times have a profound effect on investor outcomes.

 What is causing the adverse outcome in this situation? The companies themselves have made statements that the cause is investor uncertainty of the effects of intelligence on software companies. This represents a problem because private credit funds have made significant investments in software. This became a concern when the Federal Reserve began cutting interest rates. The attractiveness of these funds to investors decreased. Also, there is a significant raise in the amount of debt that will be due in 2026. This increases more concern.

This situation was foreseen and the International Monetary Fund had said in 2024 that these types of investment funds can create a problem if fewer investors are willing to withdraw funds. This would create a situation where the first to withdraw would be guaranteed a payout but there would be nothing left for those who wait. Morningstar gave his perspective on this issue again in 2025 where he said that it is possible for investors to think, "I want to get my money out, even if the fund is performing well," because they may be worried about what can happen in the future.

 It can be argued that this issue is not as significant and is more about the perception. The Federal Reserve in May 2026 said that it is not viewing the issue with credit funds with concern and that it sees it as a small threat to the overall financial system, and that potential problems would be manageable by the banks. The Financial Stability Board also said that private credit funds have a liquidity issue and that they are ill-prepared to endure a prolonged economic downturn.

 For investors, this is significant. Private credit funds are essentially banned in India to prevent this kind of issue, and yet, many Indian investors may actually be risking more and investing in these offshore, illiquid private credit funds as their lack of understanding about investing in these funds puts them at the same risk as the US investors. Many Indian family offices are investing in these funds. The funds are also being invested in a fragmented and intermediated manner which may mean that they are also losing control over the funds. The problem is not just in the US. There are problems with private credit funds and illiquidity in Indian companies as a BlackRock private credit fund is facing problems with a loan to an Indian eCommerce company.

This does not mean that private credit is an idea for Indian investment portfolios. The research that this article is based on does not say that. It says something specific that is useful for people who make investment decisions. It says that the idea of "liquidity" that is often talked about with credit investments is not always true. This is because the company that sponsors the investment may not always be able to provide the support that is needed and it also depends on when the investor wants to get their money out. It also depends on who gets out because the investors who leave first are the ones who get their money. The ones who are left behind may not be so lucky.

 When Indian investors are looking at credit investments from other countries they should ask questions. They should not just ask if the investment manager has the right to stop investors from getting their money out. They should ask who has been left behind in the past when this has happened.

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