Quarterly withdrawal caps are operating at three major perpetual private credit vehicles. The sequence—two caps in March 2026, a third in early April—marks the most concentrated gating activity in the asset class since the post-COVID liquidity disruptions of 2020. The proximate cause is specific: LP concern about AI-displacement risk in software loan portfolios, a risk that fund disclosures do not currently allow investors to measure.
The Insurance-PE-Private Credit Chain
Eileen Appelbaum, co-director of the Center for Economic and Policy Research, published a structural analysis in April 2026 identifying how the exposure was assembled. PE firms entered the life-insurance and annuity market over the previous seven years, using policyholder reserves as a funding base for private credit funds that operated with thin disclosure and no mark-to-market obligation. Those credit funds lent broadly to PE-owned portfolio companies, concentrating in mid-market software borrowers during the 2022–2024 period when enterprise SaaS revenues appeared to support high-leverage debt structures.
The AI question that arrived in 2025 was whether that revenue base would hold. Generative AI tools are changing the build-versus-buy calculation for enterprise software at the margin. The revenue hit, if it materializes, will not be uniform across the software market—but it will fall most heavily on horizontal application software with low switching costs and high substitution risk.
Disclosure Leaves LPs Without Answers
Private credit fund letters report sector exposure at an aggregate level. Software is one category, typically expressed as a percentage of total portfolio commitment. The breakdown within software—by AI-substitution risk, by vintage year, by leverage multiple—does not appear in standard disclosure formats at any major fund. An LP reading a quarterly letter cannot determine what fraction of their allocation sits in high-AI-displacement-risk software borrowers.
In that environment, the rational response for risk-conscious LPs is not to wait for better disclosure. It is to file a redemption request while the window is still open. Redemption volumes climbed through the fourth quarter of 2025 and the first quarter of 2026. The gate announcements in March and April represent fund manager responses to inflows into the redemption queue that exceeded their liquidity management parameters.
The Secondary Discount
Secondary buyers of interests in the gated funds are pricing discounts to stated NAV. The discount size has widened as each new gate has been announced, reflecting the market’s view that the stated marks do not fully capture the probability of future credit deterioration. The three gated funds have not reported material credit losses. The secondary market is doing its own discounting against the marks the funds have published.
Portfolio Risk Is Concentrated, Not Spread
The funds with the most LP scrutiny are those that lent most aggressively to horizontal application software between 2022 and 2024. These portfolios carry the highest density of AI-substitutable borrowers. Funds that built books around infrastructure software, industry-specific vertical SaaS, or asset-backed lending are experiencing a different conversation with their LP bases—fewer redemption requests, less secondary market activity.
Fund managers defending the asset class point to structural differences from public high-yield: covenant quality, private workout mechanics, the absence of forced-sale pressure from public market participants. The argument is sound in its description of the mechanics. What it does not address is whether those mechanics are sufficient when multiple portfolio companies in the same sector face simultaneous revenue pressure. That scenario has not been tested in the current private credit structure.
NAV prints over the coming two quarters, alongside any shift in LP letter disclosure toward AI-risk metrics, will provide the first grounded answer to that question. Until those data points arrive, the redemption queue will be the most current signal the market has.
Source: Private Credit Fund Redemptions Climb Sharply, Some Caps Now in Place
