Private credit funds slash loan values as borrower stress rises

• Smaller private debt funds are experiencing the most distress, with 13% of their loans now valued below 50 cents on the dollar—the highest writedown level since the COVID-19 pandemic aftermath
• Private debt fund returns slumped to 1.8% in Q4 2025 from 3.7% six months earlier, while delayed reporting by funds has contributed to investors cashing out of business development corporations (BDCs)
• One-third of investors surveyed by MSCI said they lacked access to private market data that they fully trusted, highlighting transparency concerns in the sector

Private Credit Funds Slash Loan Values Amid Rising Borrower Stress

Private credit funds have marked down over 10% of their loans by at least 50%, signaling severe distress in the $3.5 trillion private debt market, according to new MSCI data released Tuesday.

Key Findings

Loan Writedowns: More than a tenth of private credit loans are now valued below 50 cents on the dollar—a threshold MSCI associates with "deep distress or risk of restructuring." These writedown levels represent the highest since the COVID-19 pandemic aftermath.

Fund Performance: Private debt fund returns plummeted to 1.8% in Q4 2025 from 3.7% six months earlier, based on MSCI's calculation method separating investment performance from cash flows.

Smaller Funds Hit Hardest: Smaller private debt funds face the most acute borrower distress, with 13% of their loans valued below 50 cents on the dollar.

Market Drivers and Implications

Sustained high interest rates have increased debt burdens for corporate borrowers, contributing to widespread financial stress. Major players including Blackstone and BlackRock have reduced valuations of their credit funds in response.

Transparency Concerns: The data, collected in Q3 2025, highlights the significant reporting lag in private credit markets. This delayed reporting has fueled investor exodus from publicly-traded business development corporations (BDCs). An MSCI survey revealed that one-third of investors lack access to trustworthy private market data.

Regulatory Attention: Regulators have issued warnings about risks stemming from major banks' lending exposure to these asset managers.

The findings underscore mounting vulnerabilities in the private credit sector as elevated rates continue pressuring leveraged borrowers, raising questions about market stability and transparency.