[Edaily Marketin YunJi Kim JI YEONG-EUI Reporter] “It’s not so much that the market itself has ended, but rather that the era of a market where anyone could buy freely has come to an end.”

Institutional investors’ perspectives on the global private credit market (an investment strategy in which non-bank financial institutions, such as asset management firms, provide funding to corporations, encompassing alternative investments such as direct lending, mezzanine financing, distressed debt, and asset-backed loans) are shifting. Although the Blue Owl incident has brought the valuation and liquidity risks of unlisted loan assets into the spotlight, there is no widespread trend of shunning private credit itself. As the gap in bank lending persists and demand for stable income remains strong, the market’s focus appears to be shifting toward selective investing rather than a complete halt to investment. While funds used to flock to these assets simply because they offered high yields, analysts say the market has now entered a phase where performance depends on the borrower’s repayment capacity, the value of collateral, and the fund manager’s due diligence capabilities.

Aftermath of Blue Owl… Domestic LPs Move to Strengthen Due Diligence on Asset Managers

According to the domestic investment banking (IB) industry on the 17th, institutional investors—including domestic pension funds and major mutual aid associations—are reviewing their related portfolios in the wake of the liquidity and valuation controversies that recently surfaced in the overseas private credit market. Rather than signaling a halt to private credit investments, the prevailing sentiment is to raise investment screening standards for both new capital commitments and existing investment strategies.

In fact, it is reported that some mutual aid associations, such as the Military Mutual Aid Association, are scheduling a series of business trips to directly inspect existing investment assets managed by overseas asset managers. Some institutions, including the National Federation of Fisheries Cooperatives, are also scrutinizing asset managers’ track records and crisis response experience more rigorously than before during the review process for new private credit investments. This reflects a growing consensus that investments should be focused on global general partners (GPs) that have weathered multiple market shocks, such as financial crises and periods of sharp interest rate hikes.

The focus of these reviews is on the cash flow and collateral value of the borrowing companies, the structure of the agreements, and the likelihood of recovery in the event of default. In particular, there is a trend toward interpreting covenant conditions more conservatively than before. Covenants are agreements that require borrowing companies to maintain certain financial ratios or restrict additional borrowing, dividends, and asset sales. In essence, how quickly a syndicate of lenders can intervene and recover principal if a borrower falters has emerged as a key variable in private credit investments.

Concerns about the private credit market spread following the Blue Owl incident about two months ago. As redemption pressure mounted in some retail-oriented private credit products managed by the U.S. alternative investment firm Blue Owl Capital, the valuation of unlisted loan assets held within the funds and the ability to manage their liquidity came under scrutiny. Unlike bonds, whose prices are set daily in the open market, it was highlighted that it is difficult to immediately verify the asset value of private credit, and the capacity to respond may be limited in the event of a surge in redemption requests.

This is why domestic institutional investors have begun assessing risks. Given that pension funds and mutual aid associations have invested significant capital in overseas private credit products, they believe that domestic limited partners (LPs) could also be affected if global market volatility intensifies. In a recent report, the Korea Capital Market Institute identified low transparency, rising default rates among borrowing companies, and an increase in PIK loans as major risk factors in the private credit market. PIK refers to a structure where interest is not paid in cash but is added to the principal and repaid later. According to the report, the share of private credit using the PIK structure expanded from 6–7% in 2022 to approximately 11% in 2025.

“The End of a Market That Accepts Anyone”… Structural Appeal Remains

However, the caution surrounding private credit has not spread into widespread skepticism about the market as a whole. Many observers assess that the Blue Owl incident revealed not so much the limitations of private credit itself, but rather the vulnerabilities of an investment approach that failed to sufficiently evaluate liquidity structures and the soundness of underlying assets. The fact that domestic institutional investors are slowing down their investment reviews and raising their screening standards is interpreted as a move to re-evaluate asset managers and strategies, rather than to exclude the asset class altogether.

The structural appeal of private credit remains strong. Since the financial crisis, global banks have adopted a more conservative stance toward lending to mid-sized companies and acquisition financing due to regulatory burdens and rising capital costs, and non-bank asset managers have filled that void. From a corporate perspective, private credit allows for faster and more flexible fundraising than bank loans or public bonds, while limited partners (LPs) can expect stable interest income based on floating interest rates—factors cited as the driving forces behind the private credit market’s growth.

Allocations from global LPs are also continuing. According to a recent report by Aviva Investors, the allocation of global institutional investors to private corporate lending rose from 10.3% last year to 12.5% this year. Asset-backed lending, distressed debt, and opportunistic credit strategies were cited as the most attractive private credit strategies for the next two years. Forty-nine percent of respondents viewed loan strategies secured by specific assets—such as accounts receivable, inventory, equipment, and real estate—as promising, while 48% saw distressed debt and opportunistic credit strategies—which become attractively priced due to market volatility or corporate restructuring—as promising.

In this regard, a representative from the domestic securities industry stated, “Just as private lending is still viewed as a major alternative investment vehicle in Korea, the trends among global institutional investors are far from a simple contraction.” The representative added, “However, the days when funds flocked to private credit simply because of its name are over, and the borrower’s credit quality, collateral value, recoverability, and the manager’s underwriting capabilities are emerging as the key variables that determine performance.”