This article first appeared in Wealth, The Edge Malaysia Weekly on March 23, 2026 - March 29, 2026

Private credit, an alternative asset class that is often seen as capable of generating returns of 6% to 12% per annum, has come under the spotlight recently, and not for the right reasons.

This was after news that US-listed Blue Owl Capital Inc’s OBDC II, a business development company (BDC) that operates like a non-traded, closed-end private credit fund, struggled with withdrawals and permanently halted its quarterly redemption window in February. It opted instead to return investors’ capital through episodic payments as it sells down underlying assets.

As at March 2, Blue Owl Capital’s share price had plunged more than 22% to about US$11.03 per share from its peak in July last year.

Economist Mohamed El-Erian described the episode as a “liquidity crisis” and a potential “canary in the coal mine” moment for the private credit market. Swiss bank UBS, meanwhile, has projected that private credit default rates could surge to as high as 15%, up from the 3% to 5% range.

The incident sent ripples across the globe, including Malaysia, where at least five private credit wholesale funds have been launched over the past eight months. These are Berjaya Mutual Shariah Private Credit Fund (January 2026), JIA AM Private Credit Fund 1 & 2 (December 2025), Tradeview Funding Societies Income Fund (October 2025) and Muamalat-I Dana Sinar Fund (August 2025).

Private credit is essentially non-bank lending where institutional investors or private funds provide loans to smaller companies.

While sentiment has been affected, the impact has been muted so far. At least three private credit fund managers and providers tell Wealth that there have been no or “very limited” redemptions in recent months, despite investors voicing concerns about liquidity and default risks.

Industry players acknowledge that investor sentiment has been affected, but say fund managers have reassured clients that the underlying investments remain intact. Default rates are stable and investors are not rushing to withdraw their money — conditions that would otherwise trigger a liquidity crunch similar to the situation faced by Blue Owl Capital.

They also agree that its actual impact on the overall Malaysian private credit landscape is hard to ascertain as many products are offered through other instruments, such as cash trust, which are not as well regulated as unit trust funds and wholesale funds.

According to a document sighted by Wealth, one of the well-known private trust companies with cash trust offerings recently issued a letter to inform its investors about the “reduction of projected trust income” for trusts created after mid-April. However, the letter did not mention the reason for the adjustment.

Areca Capital Sdn Bhd is one of the fund houses known for its private credit offerings. In an email reply to Wealth, CEO Danny Wong says he believes the impact of the Blue Owl Capital incident on the local market is muted without contagion risk.

He adds that in the US and the EU, the private credit industry is worth trillions of dollars, with its compound annual growth rate in the double digits. The industry there is also much bigger and more mature. “Here in Asia, particularly in Malaysia, we are still in the early stages.”

The industry size and development stage matters. When the market matures and becomes saturated, investors may “travel down the risk curve” to uncover more deals to satiate investors’ hunger for yields. Put simply, it means fund managers start investing in bonds with longer tenures or those with lower seniority or protection, where risk is higher and investors are less likely to be paid if defaults happen.

Wong’s answer implies that the local private credit market still has many good quality opportunities to offer.

The actual size of the local private credit market is hard to ascertain. Yet, by combining information provided by investment research firm Morningstar and interviews with fund managers, there are at least 14 private credit funds in the market, not all of which are accessible to retail investors.

Besides the five funds mentioned above, the other funds include Ekuinas Private Credit Fund, Malaysia Debt Ventures Fund 2 & 3, Crewstone New Horizon Fund, Crewstone ASEAN Safe Investment Fund, Spartan Ambitious Fund, Spartan Assetguard Fund, JIA Australia Income Fund and Cross Light Capital (CLC) Performa Private Debt AUD Income Fund.

One of the largest among them, according to online information, is the Ekuinas Private Credit Fund, with RM800 million in assets under management (AUM). Funds made available to sophisticated individual investors have smaller minimum investment amounts of RM10 million to RM50 million.

Eleven of the 14 funds use the ringgit as the base currency. Meanwhile, six of the 14 funds have a combined AUM of RM925 million — smaller than OBDC II’s AUM of US$1.6 billion (RM6.8 billion) at end-2025.

Beyond such funds, peer-to-peer (P2P) financing is widely considered to be part of the Malaysian private credit industry. Since its inception in November 2016, P2P operators have raised RM8.49 billion via 120,370 campaigns, according to the Securities Commission Malaysia’s (SC) 2024 annual report.

These figures indicate that the local private credit industry is much smaller than the global private credit market of US$3.5 trillion (RM13.79 trillion) as at late 2025, according to the Alternative Investment Management Association (AIMA).

As Malaysian private credit fund sizes are small and tend to invest locally, they are relatively insulated from global events. As long as default levels remain steady, fund managers most likely will be able to convince clients to stay invested, instead of withdrawing funds, says Joel Brown, chief investment officer at JIA Asset Management.

“Yes, the incident has spooked some investors. No doubt, we had a few withdrawal requests. From our perspective, it’s just about explaining the difference between what caused the incident in the US, how it relates to us and how our fund and strategies are responding to it,” he adds.

“I don’t see a direct impact on the local scene as I don’t think many investors are exposed to direct lending in the US. The Malaysian, and even Asian market, tends to be more shielded in the sense that they are more domestic- or Asian-centric.”

Nixon Wong, chief investment officer at Tradeview Capital, resonates with Brown’s view. In fact, private credit has not been recognised as an asset class of its own by the regulator, despite the existence of P2P financing. It is placed under “alternative asset class”, which explains why unit trust funds can invest up to only 15% in private credit. Only wholesale funds limited to sophisticated investors can invest more than that in private credit.

Local industry players offer their observations on Blue Owl Capital OBDC II’s redemption freeze.

Chai Kien Poon, country head of Funding Societies Malaysia, says investors had been withdrawing funds from OBDC II since early 2025 as the US federal funds rate fell 0.75% last year.

As many of OBDC II’s loans are based on floating interest rates, investors were happy during a rate hike cycle, especially from 2022 to 2023, when the US Federal Reserve raised its policy rate 11 times to more than 5% from nearly zero, the fastest pace of tightening since the early 1980s. But when the opposite happened, they were worried.

Investors’ concerns also stemmed from a series of high-profile scandals linked to the private credit space in September last year. Tricolor Holdings, a major US subprime auto lender and dealership operator, filed for bankruptcy and faced fraud allegations, causing losses to investors and banks such as JPMorgan and Barclays.

In the same month, global automotive aftermarket parts supplier First Brands Group filed for bankruptcy involving fake documents and false financials, causing losses to investors involved in private credit, including UBS, Millennium Management and Point Bonita Capital.

Towards the end of last year, markets were fearful of the rapid advancement of artificial intelligence (AI) that could render traditional software companies obsolete. As at September 2025, more than 15% of companies in OBDC II’s portfolio were in the software sector, while another 2% to 3% were in the IT services sector, according to Pitchbook.

“If the viability of these software companies suddenly dropped, how would they be able to meet the terms of the underlying private credit loans and repay investors? Would they be able to refinance these loans? This generally spooked investors,” says JIA’s Brown.

He says OBDC II initially allowed redemption of up to 5% of its total net asset value (NAV) every quarter through a tender programme. But as redemptions surged, Blue Owl Capital proposed last November to merge OBDC II and OBDC, another BDC publicly traded on the stock exchange. The idea was to provide a way for investors to cash out quickly from the stock market by selling shares.

However, the merger, which was a stock-for-stock transaction, would translate into a 20% haircut for OBDC II investors, leading to a significant uproar and the plan being called off two weeks later.

In February this year, Blue Owl Capital announced the sale of its US$1.4 billion direct lending assets across three funds at 99.7% par value and planned to return 30% of investors’ capital at book value within 45 days. It permanently halted quarterly redemptions by replacing these with a structured return of capital programme, which fuelled speculation and caused ripples across the market.

Two local fund houses with private credit offerings reiterate that they are not worried about the incident as their funds have an entirely different portfolio — in terms of companies and regions — that are unrelated to Blue Owl Capital. These products, such as the Tradeview Funding Societies Income Fund (TFSIF) and JIA Private Credit Fund 1 & 2, also provide fixed-rate, short-tenure financing to private businesses, instead of the floating-rate, long-term financing of the past several years, like OBDC II.

Tradeview’s Wong and Funding Societies’ Chai say more than 90% of TFSIF investment notes mature within 360 days, 20% within 30 days and over 50% within six months. The fund allows investors to redeem 5% of its AUM each month, with any excess deferred to the following month on a queue basis.

JIA’s Brown says JIA Private Credit 1 & 2 will be involved in invoice financing that comes with fixed interest rates and tenures of mostly between one and three months.

Based on its product highlight sheet, the two funds have a lockup period of 12 months. Investors who wish to redeem their funds need to complete the prescribed redemption request form at least 90 days prior to a redemption date, or they would be unable to withdraw funds for the next 12 months.

Despite minimal impact on the local scene, the incident does serve as a wake-up call to private credit investors. Anthony Siau, founder of Kairos Capital Group Pte Ltd which has private credit offerings, says the incident was not a “credit collapse”, but a liquidity misalignment.

“Funds offering quarterly liquidity against multi-year loans are structurally very fragile. It works until investors want their money back in a big way. When redemptions exceed inflows, gates appear. This is not a scandal. It is simple mathematics,” he says.

“Gates”, or gating, is a mechanism provided by private credit fund managers to limit redemptions to prevent runs on funds holding illiquid assets. Implementing it, however, could backfire and cause widespread speculation.

The key lesson from the incident? “Malaysian investors should understand this simple logic. If you buy illiquid assets, you own illiquidity,” says Siau.

“What went wrong was not private credit as an asset class. The mistake was packaging private credit to give the impression that it’s public credit [which tends to be more liquid]. At Kairos Capital, we do not engineer liquidity optics. Capital duration must match asset duration, otherwise it is cosmetic,” he adds.

In general, Siau agrees that the risk of private credit to retail investors has been underplayed or underestimated in some cases. Not because of the default risk, but because volatility was hidden and not well presented.

He says private credit valuations are model-based as these assets are not traded daily. When investors saw a stable NAV, they made the conclusion or were convinced that these products were “lower risk”, which was a misunderstanding.

“The absence of mark-to-market volatility does not equal the absence of risk. It equals delayed recognition. What Blue Owl’s fiasco highlights is not systemic fragility, but structural complacency,” he adds

JIA’s Brown concurs. “Without being traded publicly, it may seem that their [private credit product] price is stable. But there’s no price discovery. So, how would you know the price range?”

Private credit tends to rely on internal financial models for valuations and the frequency of those valuations being updated also tends to be a point of contention. How transparent a fund manager is in conveying key information to investors by breaking down technical terms is thus critical.

“Sometimes, they can be misconstrued that private credit has low volatility or no correlation to public markets, which render them as having low risk. But that’s not always the case. Obviously, a good fund manager requires good management, transparency and strict valuations policies,” he says.

Another lesson is about targeting the right investors, managing expectations and communicating well. With a redemption mechanism in place, TFSIF investors have better liquidity compared with those who invest directly through the Funding Societies platform, says Chai. They can only get their money back when the investment notes mature.

However, Chai’s pitch to potential TFSIF investors is the same: “If you need this money in 12 months, don’t come in.”

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