The private credit apocalypse is back in the news.

I don’t know that it ever left, but it was certainly relegated to below-the-fold coverage this month amid what I’ll call “more pressing” matters.

The prospect of a reckoning for a mostly opaque, ~$2 trillion market remains a major concern for investors. It’s just not as urgent as the crisis in the Mideast, which IEA chief Fatih Birol this week noted now represents a larger oil supply shock than those witnessed in the 1970s.

This month’s edition of BofA’s monthly fund manager poll saw a surge in the share who identified private credit as the mostly likely source of a systemic credit event.

That really doesn’t tell us a lot. Private credit isn’t just the most likely source of a hypothetical systemic credit event, it’s really the only candidate. Or the only candidate that we know of. (Hyper-scaler capex concerns are justified on pretty much every score other than that one. With the possible exception of Oracle, there’s no risk of a “credit event,” per se, from the hyper-scalers.)

On Tuesday, two distinct news items refocused investors’ attention on the private credit story: 1) An Ares fund and an Apollo BDC capped withdrawals at 5% amid investor redemption requests for more than twice that, and 2) Moody’s cut a KKR-related fund to junk.

Let’s start with the gating. A couple of weeks ago, BlackRock imposed the same cap on one of their non-traded BDCs, but because the redemption requests were lower as a share of the total, the optics weren’t quite as bad. Investors in the BlackRock fund got 54% of what they asked for. By contrast, investors in the Ares and Apollo funds received just 43% and 45% of their capital, respectively.

The optics are never great when you gate, which is why funds try to avoid it where possible. You might simply honor all redemption requests, even when they exceed a limit your terms allow you to impose, for example. Better that than bad press. But if redemption requests stay elevated for several quarters or, God forbid, keep rising, that won’t work. Most of the money’s tied up in illiquid assets.

When elevated redemption requests reflect idiosyncratic concerns about a specific fund (or a handful of funds), it’s not news. This isn’t that. Rather, the impetus in 2026 is a broad-based, generalized suspicion that after nearly a decade of Chicken Littles crying wolf — to mix fables — the day of reckoning for a barely-regulated, unsupervised market allowed to expand unchecked is nigh.

Having seen many a similar premonition come to naught, I’m not losing any sleep. (Remember when the CRE apocalypse finally hit? No? Exactly.) But then again, I don’t lose sleep over anything (manic episodes notwithstanding). And being less concerned than the next guy isn’t the same thing as being wholly unconcerned.

My worry isn’t about private credit, let alone private equity, which counts among its ranks some of the most experienced capital market operators on the planet. Rather, I worry about the psychology that can take hold when too many funds are compelled to enforce caps on quarterly redemptions.

When gating becomes a trend, it can self-fulfill into a panic. Why do gates (redemption limits, caps, etc.) exist? What’s their purpose? Conceptually, they insure against a bank run dynamic. These funds’ investments tend to be highly illiquid, which is to say there may be no natural buyers for the assets. So only a small fraction of the shares can be readily redeemable and even there, “readily” doesn’t mean today nor anything like today.

As BlackRock put it this month, while limiting withdrawals from its $26 billion HPS Corporate Lending Fund, caps are “foundational.” Without them, “there would be a structural mismatch between investor capital and the expected duration of the private credit loans in which [funds] invest.”

Right. When you invest in these funds, you’re effectively buying an uninsured CD with very strict terms, and instead of financing, say, mortgages, your money’s used to fund all sorts of different lending, some of which is a semblance of risky — speculative, even. You’re rewarded with a return that’s three or four times what you might earn on a rolled bank term deposit.

The problem comes in when withdrawal requests pile up such that dividing redemption demands by an enforced cap results in a low number. If investors start to see that on a regular basis, they’ll get scared.

If you know investors in a fund that looks a lot like yours only received 45% of the money they asked for this quarter, you’re likely to put in a withdrawal request to your fund. And you probably won’t be alone. That, in turn, could force your fund to enforce its cap, at which point your low payout ratio becomes the catalyst for someone else to put in a redemption request at a different fund, and around we go.

The fact that you were told your investment wasn’t akin to ETF or mutual fund shares, let alone demand deposits, won’t make you any less pissed off when you get stuck holding a bunch of loans which, as illiquid as they were before the panic, will have no buyers at any price once the panicking starts.

That’s the risk. It’s not so much private credit (direct lending or whatever you want to call it) that I worry about. It’s more the psychology of crowded rooms with narrow exits. The biggest fear, if you ask me, is fear itself. And the lower those payout ratios I mentioned above go, the more fear you’ll see.

As fear proliferates, the market becomes commensurately vulnerable to scary-sounding headlines, which is why the Moody’s decision to cut a KKR-affiliated private credit fund into junk territory landed above the fold on some financial news portals Tuesday. (What sells? Fear.)

So, who’s scared?