A New Test for Private Credit

March 31, 2026

AI Summary

5 min read

Vishiti Ruputov, Morgan Stanley's Chief Fixed Income Strategist, interviews David Miller, Global Head of Private Credit and Equity at Morgan Stanley Investment Management, on the evolving risks and opportunities in private credit. Once a niche strategy, private credit has grown into a market exceeding $1 trillion in just over a decade, fueled by strong inflows and smooth returns. Investors now scrutinize its liquidity, transparency, and valuation amid recent pressures.

Past Stress Tests and Current Challenges

Private credit has endured prior stress tests, including the Global Financial Crisis (when the market was smaller), the pandemic, and 2022-2023 rate shocks. Miller notes it performed well despite initial volatility, with fundamentals today not as severe as in those periods. The current test targets non-traded business development companies (BDCs), which hold about 20% of direct lending assets. These vehicles offer limited liquidity by design—gates, notice periods, and redemption caps—to match their illiquid underlying loans. Ruputov and Miller emphasize this as a feature, not a flaw: full liquidity would force asset sales at distressed prices, undermining long-term operation. Media noise around redemption pressures highlights a need for better investor understanding of these protections.

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What you'll learn

1 (00:00) **Private Credit Growth and Scrutiny** - Overview of market expansion to over $1T and rising questions on liquidity, transparency, valuation
2 (00:44) **Past Stress Tests** - David recounts GFC, pandemic, 2022-23 rate shocks; private credit performed well despite volatility
3 (01:26) **Current BDC Liquidity Test** - Focus on non-traded BDC structures holding 20% of direct lending; provisions limit full liquidity as designed
4 (01:47) **Liquidity as Feature, Not Bug** - Provisions prevent runs on illiquid assets, enabling long-term operation
5 (02:26) **Media Sentiment vs Fundamentals** - Disconnect highlighted; improving leverage/coverage metrics despite software/macro concerns
6 (02:47) **Software Sector Performance** - No YTD defaults per Fitch; overall private credit defaults ~5%, software <2.5%
7 (03:14) **AI Tailwind for Software** - AI net positive long-term; positioned incumbents benefit, narrow set of losers

+ Full timestamped outline available in the app

Show Notes

Our Chief Fixed Income Strategist Vishy Tirupattur and Morgan Stanley Investment Management’s Global Head of Private Credit & Equity David Miller discuss the recent pressure on the private credit market, potential risks and opportunities that remain in that space.

Read more insights from Morgan Stanley.

----- Transcript -----

Vishy Tirupattur: Welcome to Thoughts on the Market. I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.

David Miller: And I'm David Miller, Global Head of Private Credit and Equity within Morgan Stanley Investment Management.

Vishy Tirupattur: Today – the evolving risks and opportunities in private credit.

It's Tuesday, March 31st at 10 am In New York.

Until recently, private credit was among the fast-growing parts of the financial system. In just over a decade, it went from a niche strategy to a market that's well worth over a trillion dollars. After years of outsized inflows and unusually smooth return, private credit is now in focus, and investors are asking tough questions about liquidity, transparency, and valuation.

David, you manage private credit and equity portfolios within Morgan Stanley Investment Management. Do you think the industry is facing its first real stress test? And how do you think the industry is faring?

David Miller: So, I think private credit has been tested before, you could go back to the GFC. And I know that was a long time ago and the industry was quite a bit smaller. But you could certainly look to the pandemic and the rate shocks of [20]22 - [20]23 as a stress test. And I think private credit performed, you know, quite well through that, despite the initial volatility. We saw some of that recently last year with Liberation Day; and the current environment from a fundamental perspective doesn't feel as bad as those times, and the industry does not feel under that stress.

I think the current situation is more of a test of the non-traded BDC structure where roughly 20 percent of direct lending assets sit. And the liquidity provisions in those vehicles are designed to provide some liquidity, but not total liquidity. And so, while I think the vehicles are working as intended, obviously there's been a lot of noise.

Vishy Tirupattur: So, I totally agree with you, David. The liquidity provisions that are in these structures are there for a reason; are designed to be that. It’s part of the feature and not a bug, precisely to prevent a fire sale of assets. And that really would hurt the overall system. So, we think that there’s a greater understanding of this is very much required.

David Miller: I think that's right. The limitations on liquidity are there so