Private credit has become one of the fastest-growing segments of global finance over the past decade. As traditional banks pulled back from certain lending activities, private investment firms stepped in, creating a market worth trillions of dollars.

Today, however, the sector is facing one of its most important stress tests yet.

Rising interest rates, refinancing challenges, and growing investor redemption requests are putting pressure on parts of the private credit market. At the same time, private credit exposure has become increasingly available through exchange-traded funds, creating new questions about how these structures will perform during periods of market stress.

Why Private Credit Is Under Pressure

Private credit refers to loans made directly to companies outside traditional public debt markets. These investments often provide attractive yields, but they come with a tradeoff: limited liquidity.

Unlike publicly traded bonds, private loans cannot easily be bought and sold on a daily basis. During periods of market stress, fund managers may struggle to generate cash quickly without selling assets at unfavorable prices.

This liquidity mismatch has become one of the primary concerns among investors as redemption requests increase across parts of the sector.

ETFs Bring Private Credit Into Public Markets

A major milestone occurred in 2025 when the U.S. Securities and Exchange Commission approved the first ETF designed to include direct private credit exposure.

The approval represented a significant step in opening an asset class that had traditionally been reserved for institutional investors and wealthy clients.

However, regulators imposed strict safeguards. Private credit exposure within these ETFs cannot exceed 35% of assets, and many funds currently maintain significantly lower allocations.

As a result, ETFs offer exposure to the sector while reducing some of the risks associated with concentrated private loan portfolios.

Investor Concerns Are Emerging

Market performance has already begun to reflect growing caution.

Several ETFs tied to private credit have struggled as investors reassess risk. Funds with exposure to business development companies and private credit managers have faced pressure as concerns about loan quality, refinancing risk, and redemption activity increase.

The declines highlight a broader market concern: how private credit portfolios will perform if economic conditions deteriorate or financing conditions remain restrictive for an extended period.

Liquidity: The ETF Advantage and Challenge

One of the key differences between private credit funds and ETFs is liquidity.

Traditional private credit funds often restrict withdrawals during periods of stress to prevent forced asset sales. ETFs, by contrast, allow investors to trade shares throughout the day.

This provides flexibility but introduces another risk: ETF shares may trade at a discount to their underlying net asset value during periods of market uncertainty.

While investors can exit their positions at any time, they may be forced to accept lower prices if liquidity concerns intensify.

Looking Ahead

The growing focus on private credit illustrates how financial markets continue to evolve. As traditionally illiquid assets become accessible through ETF structures, investors gain greater flexibility and transparency—but they also encounter new forms of risk.

For now, experts believe the system remains stable. However, the coming years may reveal how resilient private credit truly is in a higher-rate environment where refinancing becomes more difficult and liquidity remains a central concern.

The private credit boom transformed global lending. The next challenge will be proving that the market can withstand stress without undermining the confidence that fueled its rapid growth.