Private credit funds are well prepared to handle potential challenges posed by AI and rising requests by retail investors to withdraw from evergreen funds, industry executives and advisors said.

Alternative asset managers have been caught in the center of the AI storm this year as markets worry that rapidly advancing technology will dislocate the business models of traditional SaaS companies, leading to losses for the private equity and direct lending funds that financed them.

Negative headlines, in turn, have pushed some retail investors to attempt to exit open-ended investment vehicles designed to give access to private credit without tying them into multi-year holding periods. These so-called evergreen funds typically limit withdrawals to 5% of net asset value per quarter to ensure requests do not negatively impact other clients.

Major firms including Apollo and Ares recently capped redemptions at some of their funds, whereas other managers like Oaktree Capital have met full redemption requests.

Despite investors’ nerves causing ripples, executives say AI fears are largely overblown.

“We have been underwriting with AI in mind for three years. This is not something we suddenly woke up to a few weeks ago with tens of billions in software exposure. A significant portion of our portfolio was underwritten in this environment already,” said an executive at a large fund.

AI is the latest pressure point in a broader buildup of concerns over the past year, rather than evidence of a fundamental deterioration in credit quality, said another executive in the space. “You couldn’t have invented such a confluence of headlines attacking the private credit industry over the last 12 months,” the executive said, pointing to tariffs, excess capital putting pressure on pricing, isolated credit events and redemption dynamics alongside AI concerns.

Media overblowing weakness

Despite the series of road bumps that hit the market in the last year, underlying credit fundamentals remain intact, according to some private credit lawyers and executives.

“The media is overblowing weakness in the software market and private credit risk,”  said Matt Schwartz, US Finance Chair, DLA Piper, who attributed some of the bad news to short sellers who want to make a profit from the dip.

Shares of private capital giants Blue Owl, KKR, Blackstone, Ares and Apollo are all down between 27% and 40% so far this year. The industry has seen sizable swings in the past with the declines this year roughly in line with dips in 2022 and 2023.

Publicly listed BDCs have fared better, with the VanEck BDC Income ETF down just under 10% this year.

The Cliffwater Direct Lending Index (CDLI) returned 9.3% for 2025, down only slightly from an average return of 9.5% for the last 20 years. Only 1.27% of loans tracked by the index were on non-accrual status as of 31 December, in line with recent trends and below the average level of 2%, according to Cliffwater.

Lincoln International’s Valuations & Opinions Group is seeing less pressure on loans held by funds than headlines suggest, according to Smitha Balasubramanian, a managing director at the investment bank.

“We are seeing some pressure on valuations, but it’s still not anywhere near the level you might expect if you were just going off headlines,” Balasubramanian said.

“In private credit, the most important things to focus on are defaults and recoveries and at this stage, we don’t view this as a systemic risk event like COVID,” she said.

Instead, Balasubramanian said funds are going through a normalization period after years of frothy returns. She noted that lenders have already been tightening underwriting standards for higher-risk software credits over the past 12 to 18 months.

Software not a monolithic category

Some market participants caution against treating the sector as a single risk.

“It is intellectually lazy to talk about software, which has hundreds of different business models and is a USD 1.25tn market, as if it is one monolithic category,” said the first private credit executive. “People are looking at weighted average numbers and assuming everything behaves the same. That is just not how this market works.”

JPMorgan Chase moved in early March to reduce its exposure to private credit through loans it provides fund managers, known as back leverage, by making “modest markdowns” on private credit portfolios, Creditflux previously reported. The report noted that the bank has not seen any significant margin calls as a result of the marks.

“What JPMorgan is doing has nothing to do with a sophisticated view on software,” said the first private credit executive. “They have the unilateral ability to mark down collateral and are using that to force borrowers to post more collateral. It is a de-risking exercise, not a fundamental credit call.”

Stick or twist?

Still, as returns normalize in private credit, investor expectations are being tested, particularly among retail capital in evergreen structures that fund managers previously touted as means to secure sizable pools of capital from a new class of investors.

“Retail investors are calling each other and saying, I’m redeeming tomorrow, you might want to do the same, but all these vehicles were set up very intentionally to consider that kind of scenario and prevent it in an effort to avoid forced asset sales at a discount,” said Ryan Moreno, head of leveraged finance at DLA Piper.

An industry banker said the dynamic reflects a mismatch between product structure and investor expectations.

“Retail investors only understand liquidity, but that’s not what they invested in,” the banker said. Institutional investors, meanwhile, have said they are holding fast to direct lending allocations and hoping they can deploy more capital to the asset class, Creditflux reported.

For investors who stick with private credit, now could be an opportune time for funds to put money to work.

“You could see a situation where there are less leveraged buyout opportunities, but credit is repricing pretty dramatically across the market, and that’s even more extreme on the software side. So, the counter to a lot of the negative headlines is that the market is improving real time for direct lending,” said the second private credit executive.

JPMorgan Chase declined to comment.