Gating Season: Private Credit Managers Restrict Withdrawals Amid Software Loan Anxiety

Call it gating season. Since January 2026, quarterly redemption requests at major private credit funds have run well above their 2024 baseline, and the manager response—capping withdrawals to slow outflows—has itself become a catalyst for further anxiety among limited partners.

Insurance Capital and Software Debt: The Architecture of the Problem

Center for Economic and Policy Research co-director Eileen Appelbaum laid out the chain of decisions that built this exposure in April 2026. Starting around 2019, large private equity firms acquired life-insurance and annuity businesses and redirected policyholder reserves into their own private credit funds. The credit funds, in turn, extended substantial loan volumes to PE-owned mid-market software companies, frequently at leverage multiples of six to eight times EBITDA.

The thesis held as long as enterprise software revenues grew. The AI question now is whether that growth assumption survives the current cycle. Large language models are making software development faster and cheaper; they are also enabling businesses to replace purchased software with custom workflows at lower cost. How much of the mid-market application software borrower base can sustain its revenue trajectory through 2028 is not a question any fund letter currently answers.

Disclosure Structure Makes Pricing Impossible

Private credit funds disclose at a level that was tolerable when the underlying risk was broadly understood. Aggregate sector exposure appears in fund letters. Individual loan performance does not. AI-displacement risk by borrower is not a disclosed category at any major fund. Limited partners are therefore priced out of the tail—they cannot quantify what a 20% revenue decline at software borrowers does to NAV, because the inputs are not available to them.

In that environment, the gate announcement functions as its own signal. Two perpetual private credit vehicles disclosed quarterly outflow caps in March 2026. A third followed in April. None have reported credit losses. The secondary market for fund interests has priced in a discount reflecting the possibility of future marks moving against them.

The Compounding Mechanics

Gate announcements increase the urgency for LPs who had not yet filed requests. Secondary discounts widen, creating additional motivation to exit. The next quarterly redemption request total comes in higher than the one before. The manager that imposed a gate to manage outflow ends up with more outflow pressure than the gate was sized to contain. The asset class has seen this dynamic before in other categories; now it is arriving in private credit.

Portfolios That Built in Defenses

The bifurcation within the asset class is meaningful. Funds that concentrated lending in horizontal application software—tools with direct AI substitution risk—face the sharpest LP scrutiny. Funds that lent primarily to infrastructure software, deep-vertical SaaS with workflow lock-in, and asset-backed positions are fielding fewer questions. The distinction tracks to underwriting philosophy rather than fund size.

The structural argument from larger managers—that direct lending covenants, private workouts, and covenant-lite avoidance make this cycle different from public high-yield distress—is not wrong. It is also not tested. The test comes if and when a meaningful number of software borrowers miss interest payments and the workout process has to perform at scale.

NAV prints over the next two quarters will be the first definitive read. LP letters that begin disclosing AI-risk metrics by segment will signal that the conversation has moved from informal pressure to formal disclosure demand. Until then, the redemption queue keeps building.

Source: Private Credit Fund Redemptions Climb Sharply, Some Caps Now in Place