Apollo, Ares Under Fire: Private Credit's Bank-Run Risk Ignites Manager Selection Gold Rush

The private credit market is caught in a classic divergence. On one side, the underlying fundamentals point to a resilient and structurally important asset class. On the other, a wave of investor anxiety is creating severe technical pressure. This split defines the market's current tension.

The market's scale and growth story are undeniable. Since the financial crisis, private credit has ballooned into a $1.8 trillion global market as of the first half of 2025. This expansion was a direct response to stricter lending standards on traditional banks, which curbed their lending to mid-sized businesses. The sector's growth driver-the shift of lending away from banks-remains intact, suggesting a durable structural role.

Yet, the headlines tell a different story of stress. In recent months, the market has seen record investor redemptions. This flight has been most acute in the stocks of the asset managers themselves, which have suffered a historic selloff. From their peaks last year, shares of major firms like Apollo and Ares have fallen by more than 40%, with Blue Owl dropping by two-thirds. The wipeout has erased over $265 billion in market value. In response to the outflows, a number of asset managers including Apollo Global Management, Ares Management, and Blue Owl Capital have all scrambled to restrict investor withdrawals. This technical pressure resembles a bank run, driven by fears over specific exposures, particularly to software companies seen as vulnerable to AI disruption.

Industry leaders argue this anxiety is misplaced when viewed against systemic risk. They point to the market's fragmented nature, its limited leverage, and the fact that assets and liabilities are typically well matched. As Dan Greenhaus of Solus Alternative Asset Management noted, "The equation to 2008, I think, is misplaced". The market's growth from a roughly $250 billion base during the Great Recession to $1.8 trillion today is a testament to its evolution, not its fragility. Goldman Sachs' Vivek Bantwal echoes this, stating that private credit appears unlikely to pose a significant financial system risk because of these structural characteristics.

The bottom line is a market split. The fundamentals-low default rates, strong borrower growth, and a critical role in the capital markets-remain robust. But the technicals are under severe strain from redemptions and a sharp selloff in fund manager stocks. This creates a volatile setup where headline risk can temporarily overwhelm underlying strength.

The New Structural Drivers: Dispersion and the ABF Shift

The market's current stress is a symptom of deeper, structural shifts that are reshaping private credit's risk and return profile. The era of broad, uniform outperformance is over. Now, outcomes are becoming a function of manager skill and sector exposure, with the asset-backed finance (ABF) segment emerging as the primary growth engine.

Performance dispersion is widening, making manager selection more critical than ever. As one analysis notes, "Performance dispersion is widening among private credit fund managers". This divergence is clearest in portfolios heavy with software and AI-driven companies, where the risk of disruption is a live concern. While private credit loans to software firms are often protected at the top of the capital structure, outcomes may vary based on underwriting practices. This creates a bifurcated market where some managers are navigating these headwinds successfully, while others face pressure, amplifying the volatility in fund manager stocks.

Against this backdrop, the asset-backed finance segment is accelerating as the sector's main growth vector. The shift is from a traditional corporate lending focus to a broader pool of underlying assets. As one report highlights, "Investing is shifting from a corporate lending focus to the ABF market". These are loans secured by tangible assets like equipment leases and auto loans, a long-established but now revitalized form of credit. This move is driven by the need for diversification and the search for new origination opportunities as banks remain constrained in certain lending activities. The ABF segment offers a complement to direct corporate lending, with strategies potentially generating a high single-digit return premium.

This structural pivot sets the stage for a future tightening in supply. The industry expects a large refinancing wave and an escalating M&A cycle, which could eventually overtake private credit supply. As noted, "We expect new deal demand and a large refinancing wave to gradually overtake private credit supply... allowing lenders to preserve discipline, strengthen terms, and capture the illiquidity premium to public markets." This dynamic, coupled with a potential "higher for longer" M&A environment, suggests a future where lenders have more leverage to maintain underwriting standards and earn a premium for providing illiquid capital. The current technical weakness may be a painful but necessary adjustment to this new, more selective landscape.

The 401(k) Catalyst: A Long-Term Liquidity Anchor or a New Risk Vector?

The proposed Labor Department rule to allow private credit in retirement plans represents a potential structural catalyst of historic proportions. Its stated purpose is to reduce fiduciary liability risks for plan sponsors, thereby unlocking trillions of dollars in retirement savings for alternative assets. As the Trump administration's executive order framed it, the goal is to "lessen the regulatory burden and risks of lawsuits for sponsors". This could steer capital away from traditional stock and bond funds into a market that has recently shown signs of strain. In theory, this is a powerful long-term liquidity anchor, aligning the patient capital of retirement accounts with the illiquid nature of private credit.

Yet this catalyst introduces a new and potentially volatile tension. The rule creates a demand for private credit from investors with a long-term horizon, but plan-level liquidity requirements impose a countervailing pressure. This mismatch could generate a new, technical source of volatility. If a significant portion of the new 401(k) inflows is channeled into traditional, closed-end private credit funds, it would deepen the market's reliance on vehicles that are illiquid and difficult to value. This setup risks replicating the redemption pressures seen in recent months, but now with a broader base of retail investors who may lack the sophistication to navigate the asset's opacity.

The rule's true impact may be to accelerate the market's evolution toward more transparent, semi-liquid vehicles. To manage the liquidity demands of a retail investor base, managers will likely be forced to innovate. This could involve scaling up evergreen funds, structured credit products, and NAV lending-tools already being adopted to address demand for alternative liquidity funding. In this scenario, the 401(k) push deepens the Main Street retail investor's role in a traditionally opaque market, but does so through a layer of financial engineering designed to provide a semblance of liquidity. The bottom line is that the rule promises a massive, long-term capital inflow, but its immediate effect could be to amplify the very technical pressures the market is trying to shed.

Investment Implications and Key Watchpoints

The analysis points to a clear investment thesis: the market's next phase will be defined by selection, not sentiment. The primary driver is no longer the asset class's aggregate health, but the divergence between managers and sectors. This creates a bifurcated landscape where the path to alpha depends on navigating this widening dispersion.

The most critical watchpoint is the Labor Department's final rule and the subsequent pace of 401(k) plan sponsor adoption. The proposed rule intends to clarify how trustees can add alternative assets to retirement plans, a move that could unlock trillions of dollars in long-term capital. However, the catalyst's impact will be measured in adoption, not announcement. The key will be whether plan sponsors, shielded from fiduciary liability, begin to incorporate private credit into investment menus. This is the structural change that could eventually offset the technical outflows and provide a durable, patient capital base. For now, the rule is a promise; its fulfillment is the catalyst to watch.

This catalyst will intensify the existing trend toward sector concentration. The market is already splitting along clear lines. On one side are the high-quality, asset-backed finance (ABF) loans secured by tangible collateral like equipment leases. This segment is accelerating as the primary growth vector, offering a complement to direct corporate lending. On the other side are the riskier, software-heavy direct lending portfolios, where AI-driven disruption creates a live concern. The widening gap between these two segments will be the clearest sign of further dispersion. As one analysis notes, "Performance dispersion is widening among private credit fund managers", and this will be most visible in the contrast between ABF's steady growth and the volatility in software-heavy strategies.

For investors, the takeaway is one of heightened scrutiny. The fundamentals of private credit-low default rates, strong borrower growth-remain intact, but they are no longer a blanket endorsement. The investment thesis now hinges entirely on manager skill and sector concentration. Success will belong to those who can identify managers with robust underwriting in the ABF space or those navigating the software sector with a differentiated, resilient approach. The current technical weakness may be a painful but necessary adjustment to this new, more selective landscape. The bottom line is that the market's future is not about whether private credit is safe, but about which pockets of it are worth the risk.