Secondary market bids for private credit funds are coming in at roughly 65 cents on the dollar right now. That is not a transaction cost. That is a 35% discount to what the funds claim they are worth on paper. And the Trump administration spent last August signing an executive order to let your 401(k) into this market.
The timing is worth sitting with for a moment.
Private credit is a $1.9 trillion debt market that has functioned, for the past decade, on a simple premise: institutional investors provide capital, middle-market companies borrow it at floating rates, and managers collect fees while reporting stable valuations. The problem is that the valuations were never marked to market. Losses do not arrive gradually in private credit; they arrive suddenly, when defaults cluster or forced sales hit. Analysts estimate that a true market-pricing exercise across many strategies today would produce markdowns of 30% or more. That gap between reported value and economic value has been accumulating quietly, and it is now starting to show.
The Exit Is Already Happening
Morgan Stanley and JPMorgan both turned cautious on private credit in mid-March 2026, as redemption requests hit all-time highs. Industry projections suggest that by the second or third quarter of 2026, more than 80% of debt-focused semi-liquid funds will see net capital outflows. These are the "semi-liquid" vehicles with quarterly withdrawal caps set at 5% of fund value. Do the math on a full exit under those constraints: it takes over a year to get your money back under normal conditions. Under stressed conditions, with everyone trying to leave simultaneously, it takes longer. That dynamic has a name. It is a gate. Investors in 2008 learned what it felt like when money market funds imposed them.
Institutional investors, the ones with early access to fund-level data and enough lawyers to read subscription agreements carefully, are already out or getting out. Private credit requires a constant flow of new capital to function. When institutional money leaves, that flow has to come from somewhere. The executive order points directly at where: the $8 trillion 401(k) market. If private equity and private credit capture just 5% of that pool, that is $400 billion in retirement savings buying what sophisticated investors are selling.
Software Loans and the AI Disruption Nobody Priced
Up to 40% of private credit loans are concentrated in software companies. These were supposed to be the boring, predictable end of the portfolio: recurring-revenue businesses with stable cash flows. AI is now disrupting software margins faster than anyone expected at origination, and the losses are obscured because private credit managers face limited reporting requirements. You will not find this in an earnings call. You find it in credit-default-swap spreads and in the secondary market bids that just came in at 65 cents.
Defenders of the 401(k) expansion will argue that diversification into private assets gives retail investors access to return streams previously reserved for endowments and pension funds. That is a fair point, and in a stable credit cycle it carries real weight. But this is not a stable credit cycle. This is an exit in progress, and retail savers are being handed the bags that institutional capital is dropping.
The right move here belongs to the Department of Labor, not individual savers. Fiduciary standards that govern 401(k) plan offerings exist precisely for moments like this: when a product with illiquidity risk, opaque valuations, and concentrated sector exposure is being marketed as a diversification tool. The DOL should halt implementation of the executive order until private credit managers are required to mark portfolios to market quarterly. Without that, retirement savers will not know they have absorbed the loss until the quarterly statement arrives, long after the institutions have settled their redemptions.
The institutional exit from private credit is already underway. The only question is who ends up holding the position when the gates close.
