Recent headlines have raised questions about whether regulated private credit funds are adequately prepared to manage liquidity during periods of market stress. In particular, decisions by fund managers to enforce redemption caps—limiting investors’ ability to withdraw money—are being portrayed as a sign of broader concerns. In conflating shifting sentiment about the value of certain assets with the absence of unlimited and immediate liquidity, some commentators suggest that maintaining repurchase limits calls into question the safety and soundness of private credit funds, and private market vehicles more broadly. This has taken on greater significance as the Trump Administration moves to expand retail access to private market assets.
The fact is that these funds are doing exactly what they are designed to do, and the careful management of how much investors can withdraw is an intentional and necessary part of how they function. These funds are meant for long-term investing, and they limit redemptions accordingly. Those limits are not a sign of stress—they are a tool to protect investors and were disclosed to investors when they first purchased such funds.
Regulated private credit funds—in particular interval funds, tender offer funds, and business development companies (BDCs) utilizing a tender offer structure—come with built-in protections, including independent boards, Securities and Exchange Commission (SEC) reporting, leverage limits, and SEC rules that keep fund managers accountable to investors. For private credit, which trades less frequently, this structure is especially important. Effective governance includes clear documentation, defined escalation protocols, regular board reporting, oversight of third-party pricing providers, and periodic testing of valuation methodologies per regulation.
When withdrawal requests exceed pre-determined limits, the fund doesn’t pay out on a first-come, first-served basis. Instead, requests are handled evenly, so no investor is rewarded simply for moving first. Further, a wave of redemptions exceeding pre-determined limits are paid out in an orderly way to avoid forced sales of assets. This is to protect remaining shareholders and prevent potential dilution. This system may also incentivize some exiting investors to over-adjust their redemption requests to maximize their share of the final redemption proceeds if they expect the fund to impose a limit.
Consider a private credit fund holding long-term loans to mid-sized companies. Private credit, by its nature, is not liquid and not intended to be traded frequently. If a fund were structured to offer broad, on-demand liquidity, it would need to hold a much larger share of liquid, publicly-traded securities to meet potential withdrawals, reducing its allocation to private credit and altering its return profile.
In other words, it would be a different kind of fund with a different objective. The industry already offers a range of vehicles to meet different investor liquidity needs, such as intraday liquidity in ETFs to daily liquidity in mutual funds. Private credit funds that have an interval or tender offer structure are designed to serve investors with longer time horizons and to hold less liquid assets, and they have periodic liquidity terms that reflect those characteristics. The objective is to align the fund’s redemption structure with the nature of its long-term assets and ensure all investors are treated fairly.
What’s happening in private credit funds reflects how these funds are designed to operate. As with all active management strategies, there may be winners and losers based on investment decisions made by the adviser. However, what we are not seeing is a “run” where a liquidity crisis forms and then turns into a credit crisis, as with Silicon Valley Bank in 2023. This is because the interval and tender offer structure is working as designed – granting fund managers a long-term horizon to manage redemptions and source liquidity throughout periods of market volatility.
Private credit—and private market assets more broadly—have a clear role in a well-constructed portfolio where they sit alongside investments in other assets with different liquidity and redemption profiles. Investors rely on a mix of assets designed to serve different purposes: some provide liquidity and stability, while others offer the potential for higher long-term returns in exchange for less immediate access to cash. Private credit fits into that second category, providing income, diversification, and access to opportunities not available in public markets.
That tradeoff is not new. Many long-term investments work this way. A certificate of deposit, for example, offers a fixed return in exchange for committing capital for a set period. A rental property cannot be sold overnight. And an ownership stake in a private business requires time to realize its value. Long-term investing itself is built on the idea that better outcomes come from patience and discipline. Private credit and other private assets are typically a modest allocation within a broader diversified portfolio and should not be considered a source of near-term liquidity.
All investors should choose investments in consideration of their circumstances, needs, and risk appetites. It would be a mistake to assess the merits of private credit based on the structure of funds and decisions to handle redemption requests in accordance with their well-publicized repurchase limits.
