Alasdair Glass discusses the private credit disputes landscape in Thomson Reuters Regulatory Intelligence

Introduction

Many say that the private credit market is facing a period of reckoning. After more than a decade of uninterrupted growth, during which assets under management globally have grown to over $2 trillion, the sector now confronts simultaneous stresses at multiple points of its operating chain. At one end, an increasing number of investors are seeking redemptions and discovering that their investments are less liquid than they anticipated. At the other end, the institutions whose leverage underpins much of the private credit ecosystem are pulling back from riskier exposures. The convergence of these two pressures has the potential to generate a significant wave of disputes over the coming years.

This article looks at the terrain on which these disputes may be fought, and maps the categories of claim most likely to arise as the private credit cycle turns.

Redemptions

In the United States, a wave of redemption pressure has swept through the private credit sector in the first half of this year, with Apollo, BlackRock, Blue Owl and others imposing or tightening gates on their credit vehicles. In June 2026, for example, it was reported that investor redemption requests at the $15 billion Apollo Debt Solutions fund (Apollo's flagship retail private credit fund) had risen to 17 per cent of the value of the fund - leading to Apollo to cap redemptions at 5 per cent.

Closer to home, on 3 June 2026, Partners Group, the Swiss-headquartered private markets firm, capped redemptions on its $8.6 billion Global Value SICAV fund, a European-domiciled evergreen vehicle, after withdrawal requests surged to approximately 9.8 per cent of net asset value, exceeding the fund’s 5 per cent quarterly cap. Whilst the fund is a private equity evergreen fund (designed to allow more liquidity than a traditional closed private equity fund) the economic backdrop leading to the redemption requests and gating of the fund is the same. Partners Group subsequently warned that other vehicles, including a $15.8 billion US Delaware-domiciled fund, were also likely to face similar restrictions.

These redemption requests come amid heightened investor concern regarding fraud, loan losses and exposure of the funds to the systemic disruption of the software sector caused by AI as well as downgrading by credit funds, and their bank lenders, of the value of the loans within their portfolios.

As noted below, the operation of gating mechanisms, the degree of discretion involved and the underlying issues that have given rise to the triggering of gates, all have the potential to generate disputes between credit funds and their investors.

Back-Leverage Model

At the same time as the increase in redemption requests, banks have been restricting lending to private credit firms. HSBC informed clients that it would not provide back-leverage for riskier private credit funds. Barclays’ chief executive stated that the bank was “constraining lending to certain structured finance counterparties who operate more vulnerable business models…” These decisions have immediate implications for fund managers and portfolio companies that depend on bank leverage. Banks provide hundreds of billions of dollars in back-leverage each year, generating lending income whilst taking indirect exposure to the underlying loan portfolios.

The fragility of this model was dramatically exposed in early 2026 by the collapse of Market Financial Solutions (MFS), a UK specialist mortgage lender. MFS had built a £2.4 billion loan book and funded itself through warehouse financing provided by major global institutions. When the firm collapsed in February 2026, amid allegations of fraud, creditors alleged an 80 per cent deficiency in verifiable collateral.

The losses were substantial and immediate. Barclays took a £228 million hit. HSBC reported a $400 million impairment, incurred through Apollo-backed Atlas SP. Santander disclosed $267 million in exposure. The Financial Conduct Authority (FCA) has since launched a formal investigation into MFS.

As a further pressure point, regulators have become increasingly concerned at systemic risks caused by the exposure of the banking sector to private credit lending. The Chair of the ECB Supervisory Board has noted that, due to back-leverage, the growth of the private credit sector has not resulted in risks migrating away from the regulated sector and has warned that the links between the banking and private credit sectors "create channels through which shocks can be transmitted, amplified and redistributed across the financial system".

The withdrawal of bank leverage does not only affect the funds in question. It has downstream consequences for portfolio companies that depend on continued access to private credit, and it risks creating a negative feedback loop: as banks withdraw, funds face liquidity pressure, which may force asset sales at distressed prices, which in turn may trigger further bank markdowns. This dynamic is precisely the type of systemic risk the ECB has identified, and this perfect storm creates fertile ground for disputes.

Investor claims

Disputes between funds and their investors can arise in a number of different ways. The most likely categories are disputes in respect of the operation of gates, valuation disputes, and disclosure or mis-selling claims.

Gates

Gates are a protective mechanism built into fund documentation precisely for periods of stress. By limiting the pace of redemptions, they can prevent forced sales of assets at distressed prices. The FCA has stated that redemptions should be met from a representative sample of the portfolio, rather than by selling only the most liquid assets and leaving remaining investors with a concentrated, less liquid residual. Proponents therefore argue that gating preserves value for the investor base as a whole, and that the recent wave of gating shows these mechanisms functioning as designed, even though they may defer investors’ access to capital.

However, where the fund documents permit managerial discretion in imposing or managing gates, disputes can arise as to whether that discretion was exercised rationally, properly and in good faith. Particular tension arises where the fund manager or its affiliates are themselves investors in the fund. If managers redeem their own holdings (or are perceived to have done so) whilst other investors remain gated, claims of breach of duty and conflict of interest almost inevitably follow. Similarly, claims of unfair treatment arise where managers selectively permit certain institutional investors to redeem, whether through side letters, preferential treatment, or the exercise of discretion.

Further, the mechanics of pro rata redemption can create perverse incentives. Typically, when withdrawal requests exceed the quarterly cap, each investor seeking to redeem receives a proportionate share of the available liquidity according to the size of their request. Sophisticated investors, aware of this dynamic, may submit inflated redemption requests to maximise their allocation of the final distribution, a dynamic analogous to oversubscription in primary markets. This gaming behaviour disadvantages less sophisticated investors who submit genuine requests at face value.

Disclosure

The democratisation of private credit, with products historically reserved for institutional investors extended to retail and wealth clients, has created increased scope for potential mis-selling and disclosure claims. The tension between marketing promises of flexible access to private market returns and the structural illiquidity of the underlying assets is likely to be central to those claims.

Claims may focus on whether investors were told that the fund’s model depended on bank back-leverage that could be withdrawn, whether concentration risks in the underlying portfolio were adequately described, and whether marketing materials accurately explained the circumstances in which gates or suspensions could be imposed. Potential causes of action include breach of contract, misrepresentation, negligence, breach of fiduciary duty and breaches of obligations under the FCA Handbook.

The availability of litigation funding may enable retail investors with individually modest losses to pursue group actions where the aggregate claims justify funder involvement.

Valuation

Valuation is the fault line beneath many other disputes in private credit. When assets are illiquid, valuations are inherently subjective, depending on models, assumptions and managerial judgement. In late April 2026, Grizzly Research published a 37-page report alleging that up to 40 per cent of the assets of Partners Group’s evergreen fund were materially misvalued. Partners Group rejected the allegations as frivolous, defamatory and highly misleading, and announced that it was suing Grizzly, pointing to realised exits at or above published valuations in response.

As noted above, valuation stress is appearing across the sector. BlackRock’s TCP Capital Corp reported Q4 2025 write-downs that reduced NAV by 19 per cent, while banks providing back-leverage marked down specific loans posted as collateral, prompting managers to swap holdings.

Claims may be framed as a breach of the fund manager’s duty to value assets in accordance with the methodology in the fund documentation, breach of the duty of care owed to investors in conducting valuations, or misrepresentation where published NAVs were materially misleading.  Third party valuers, and even auditors, may also face claims.  The central questions will include whether assumptions were reasonable, valuation processes sufficiently independent and methodologies consistently applied.

Bank disputes

Disputes may also arise between the funds and their banks providing back-leverage, including as to whether those banks were entitled to decline to renew facilities, or whether any contractual notice or other provisions constrained that decision. At the fund level, issues may include breaches of covenants relating to portfolio concentration, NAV triggers or redemption levels, and whether margin calls or collateral markdowns were commercially reasonable.

The MFS collapse illustrates how quickly these issues can escalate. In January 2026, Barclays froze MFS accounts after detecting anomalies in the collateral pool in November 2025 and attempts are now underway to clawback those frozen funds. Such claims may examine whether any protective actions taken were timely, proportionate and consistent with the bank’s contractual obligations. Facility agreements commonly contain MAC (material adverse change) clauses, events of default, and discretionary rights to call for additional collateral or decline further advances. Where such discretion exists, the 'Braganza duty' established in Braganza v BP Shipping requires it to be exercised in good faith and for proper purposes.

Practical recommendations

For fund managers, the priority is to review fund documentation so that gating mechanisms, discretionary powers and valuation methodologies are clearly described and consistently applied. Disclosure practices should be audited, and governance around valuation, including the independence of valuation committees and documentation of valuation decisions, should be stress-tested.

For banks providing back-leverage, facility documentation should clearly define the bank's rights, including the right to mark collateral, call margin and decline to renew. The exercise of those rights should be done properly and documented contemporaneously with a clear rationale.

For investors, the priority is to understand the documentary protections available, document decision-making around redemption requests, and to obtain and preserve evidence of any representations made both before investment into the fund and during the investment period. Where losses have crystallised or are crystallising, early legal advice is essential to preserve claims and comply with limitation periods.