Under the double pressure of capital withdrawal and increasing defaults, "fund-level leverage" has become a new pain point for private equity funds.

Private credit funds are facing unprecedented investor redemptions and a large number of borrower defaults, and now they have to engage in a game with major lenders such as large banks. Morgan Stanley recently decided to tighten some loans after lowering the valuation of some loans in private credit funds, causing the entire industry to be highly vigilant against the risks faced by "fund-level leverage". This borrowing method, which uses asset portfolios as collateral for financing, is not unique to the private credit sector, but has greatly accelerated the rise of direct lending business. Insiders pointed out that in a market with good prospects, fund-level leverage operations could push returns of 8% or 9% to double digits. Therefore, any contraction in such loan business could erode the lucrative returns private credit companies use to attract investors to enter this $1.8 trillion market.