Counsellor Quarterly
April 6, 2026
Authors
- Tasneem Azim-Khan, Vice President, Chief Investment Strategist;
- Kwun Chung, Senior Research Analyst;
- Laurent Marien, Senior Portfolio Engineer
The private credit market faces a period of heightened scrutiny as publicly traded Business Development Companies experience declining stock prices and rising redemption requests, particularly accelerating in Q4 2025, and Q1 2026. However, the fundamental driver of current market stress is a liquidity squeeze rather than systemic credit deterioration. Redemption activity stems from multiple factors: distribution normalization from low-teens to high-single-digits as interest rates declined from 2022 peaks, spread tightening reducing relative return advantages, and sector-specific concerns regarding AI disruption in software – an area where private credit maintains significant exposure at approximately 20% of portfolios.
The software sector merits particular attention. While AI-driven disruption has triggered broad investor anxiety and contributed to sell-offs in publicly traded software stocks, the reality is more nuanced. Software encompasses more than a dozen sub-verticals, with outcomes likely to vary substantially across companies based on competitive moats, proprietary data, and infrastructure criticality. The transition will unfold over multiple years, producing both winners, and losers rather than wholesale sector disintermediation. Experienced managers with diversified software portfolios across sub-verticals and exposure to AI beneficiaries may be better positioned to navigate this transition and potentially negotiate improved spreads on new deals as capital supply becomes more disciplined.
Critical credit health metrics – including default rates, interest coverage, loan valuation, and payment-in-kind income ratios – remain stable, indicating credit issues are idiosyncratic rather than systemic. The three private credit funds on the RBC Phillips Hager & North Investment Counsel platform – Oaktree Strategic Credit Trust, Blue Owl Credit Income Trust, and Blackstone Private Credit Fund – demonstrate conservative leverage profiles, credit metrics at, or better than market averages, and disciplined positioning supported by robust risk management processes developed across multiple market cycles.
Redemption limits serve a protective function for all unitholders by preventing forced asset liquidations at unfavorable prices during redemption spikes. The standard 5% quarterly redemption threshold, when exceeded, triggers prorating – a responsible approach that preserves portfolio value. Private credit maintains inherent liquidity advantages through regular loan maturities and refinancings, averaging 5-6% of portfolios quarterly, supplemented by 10-20% cash reserves, and significant borrowing capacity on the platform's funds.
Looking forward, the current recalibration period may create opportunities for long-term investors. Capital scarcity should widen yield advantages and reward disciplined managers with conservative positioning. The private credit market is projected to reach $4.5 trillion by 2030, driven by bank disintermediation, and sustained institutional demand, with allocations exceeding 30% in institutional portfolios where private credit serves as a core, long-term holding.
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