Private Credit Exodus: $7B Flees Major Funds After First Brands, Tricolor Bankruptcies
Investors hit the eject button. A massive $7 billion has been yanked from major private credit funds in the wake of high-profile bankruptcies at First Brands and Tricolor—a clear signal that confidence is cracking.
The Domino Effect
When big names tumble, the tremors are felt everywhere. The collapse of these two firms didn't just wipe out their own balance sheets; it triggered a full-scale reassessment of risk across the entire private credit landscape. Suddenly, those 'stable' yields looked a lot more fragile.
Liquidity vs. Illusion
The frantic withdrawals expose a harsh truth about private markets: liquidity is often a polite fiction until everyone wants out at once. Funds built on long-term, illiquid assets now face the music as investors demand their cash back—proving once again that in finance, 'alternative' is just another word for 'hard to sell in a panic.'
A Flight to... Where?
So where does that $7 billion go? Not back into shaky traditional debt, that's for sure. This capital is hunting for a real safe haven—a system with transparent ledgers, programmable rules, and no central point of failure. It's almost as if there's a digital, decentralized alternative waiting in the wings.
The old guard's house of cards is wobbling. Smart money is already voting with its wallet, searching for structures that don't rely on handshake deals and opaque balance sheets. The future of finance isn't being written in a banker's boardroom; it's being coded on a blockchain.
Trump’s 10% interest rate cap plan triggers more fears
While Wall Street deals with investor flight, President TRUMP has lit a new fire by pushing for a 10% interest rate cap on credit cards. The warning signs came fast. The Electronic Payments Coalition ran the numbers and said 82% to 88% of cardholders would lose their cards or see big limit cuts. That’s millions of Americans.
The worst hit? People with credit scores under 740. The EPC says that’s 175 to 190 million people who’d either lose their cards or face serious limits.
Jeremy Barnum, the CFO at JPMorgan, told investors this WOULD wreck access to credit. “People will lose access to credit, like on a very, very extensive and broad basis, especially the people who need it,” he said.
Barnum added that:- “This could have a severely negative consequence for consumers and, frankly, probably also a negative consequence for the economy as a whole.” And yes, the bank would feel it too. “We wouldn’t be in it if it weren’t a good business for us.”
Cliffwater earlier said that it was “not worried about our ability to perform, knowing that we have a lot of liquidity behind us and we think quarter on quarter things will get better.”
Between collapsing companies, rising redemptions, rate cuts, and now the card cap fight, the credit market is getting hammered from every side. There’s no telling what comes next. But for now, Wall Street is watching people walk out the door.
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