Private Credit's Retail Boom Comes With Run Risk

What's New

Private credit's growing retail base makes lending to middle-market companies more likely to shrink when markets turn. Logan George and Chaehee Shin make the case in a Federal Reserve FEDS Note. They tracked interval funds, tender offer funds, and non-traded BDCs. Combined net assets were $15 billion in 2018. They reached $388 billion in 2025. Retail flows follow sentiment, so the money behind these loans can leave when stress hits. Sponsors should treat retail-funded credit capacity as cyclical when they plan refinancings.

Why It Matters

The standard pitch for private credit is patient, locked-up capital that holds steady when banks pull back. Semi-liquid vehicles weaken that pitch. Their size moves with how many retail investors want in or out each quarter. Sponsors that count on non-traded BDC appetite to refinance are most exposed. Non-traded REITs set the precedent from 2022 to 2024. Gates lasted months to years, and resolution took asset sales and fresh capital.

By The Numbers

• 0.2% of non-traded BDC portfolios are short-term liquid assets. Loans make up 93.4%.

• 49.5% of interval fund holdings are private credit. Interval and tender offer funds both started the sample near 20%.

• 0.9 is the average debt-to-equity ratio at non-traded BDCs. Interval funds average 0.27.

• $13.9 trillion sat in US defined contribution plans as of September 2025, the pool a recent executive order aims to open to private markets.

What To Watch

• Interval fund private credit share. Private credit rose from about 20% of interval fund holdings to nearly half by 2025. Quarterly N-PORT filings through 2027 will show whether that climb continues.

• Marks during the next public selloff. The REIT runs started when private marks moved slower than public prices. The spread between private credit marks and public loan prices in the next widening is the early signal.

• 401(k) rulemaking. The executive order directs regulators to ease private market access in 401(k) plans. Final rules over the next 12 to 18 months will set how much new retail capital reaches these vehicles.

The Wrap

Middle-market borrowers now depend in part on retail sentiment for credit. The effect stays contained while repurchase caps and portfolio cash flows cover redemption requests. It grows if private credit marks trail a public spread selloff, since that gap gave REIT investors a reason to run. Wider 401(k) access would raise the stakes further. Quarterly repurchase data from the largest non-traded BDCs through 2027 will show which path holds.