Major Wall Street firms are tightening withdrawal restrictions on private credit funds at an accelerating pace, raising fresh concerns about liquidity management within the $1.8 trillion asset class as investor redemption requests surge to record levels and loan quality concerns mount.
Morgan Stanley disclosed that its North Haven Private Income Fund, which holds approximately $7.6 billion in total assets, satisfied only $169 million—or roughly 45.8%—of investor redemption requests for the first quarter after demands reached nearly 11% of shares outstanding, well above the fund's 5% quarterly cap. Separately, Cliffwater LLC's $33 billion flagship private credit vehicle capped withdrawals at the regulatory maximum of 7% of shares, after investors sought to pull a record 14%. BlackRock has implemented similar restrictions on its $26 billion HLEND fund, following redemption requests that hit 9.3% of net asset value.
The wave of gating closely follows a similar move by Blackstone, which disclosed on March 2 that its private credit fund BCRED had also faced a surge in first-quarter withdrawal requests. Deutsche Bank separately flagged a $30 billion exposure to the private credit sector, adding to investor unease. JPMorgan Chase has begun restricting lending to loans associated with software companies within its own private credit portfolios and has marked down the value of certain loans following an internal review of the technology sector.
At the center of investor concern is the potential for artificial intelligence to erode the earnings of software companies that represent a significant share of private credit loan portfolios. Morgan Stanley warned in a February 2026 internal report that approximately 50% of software sector loans carry below-investment-grade ratings of B- or lower, and that over 80% were issued by private, sponsor-backed companies with limited public disclosure. As AI tools lower barriers to entry in enterprise software, the risk of loan defaults among these borrowers is rising.
Morgan Stanley itself noted that its North Haven fund maintains over $2.2 billion in liquidity as of January 31, and defended the withdrawal limits as a mechanism designed to prevent forced asset sales "during periods of market dislocation." The fund has delivered an annualized net return of 8.9% over three years, the firm noted.
Some analysts are cautiously optimistic that the gating mechanisms are functioning as intended stabilizers rather than signals of systemic collapse. Louis Navellier, CIO of Navellier & Associates, noted that quarterly redemption caps are written into private credit fund charters specifically to protect long-term investors, and that anticipated Federal Reserve rate cuts would relieve pressure on variable-rate borrowers. However, with default rates approaching 9% for certain funds, the risk of a more significant credit event is difficult to dismiss entirely.
Financial sector stocks broadly underperformed Thursday, with bank and alternative asset manager shares sliding as investors reassessed exposure to the private credit ecosystem. The developments cast a shadow over the FOMC meeting beginning March 17, where policymakers will need to weigh credit market stress against still-elevated inflation driven by soaring energy costs.