By Elaine Misonzhnik, in WealthManagement.com, featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
Key Takeaways
- Liquidity expectations are being tested. Rising redemption requests are exposing the limits of semiliquid fund structures and their capped withdrawal mechanisms.
- Investor misunderstanding is a key risk. Many investors may not fully understand that semiliquid funds can restrict access to capital during periods of stress.
- Fund structure—not just credit quality—matters. While underlying loan performance remains relatively stable, liquidity mechanics and investor behavior are driving volatility.
Rising withdrawal requests at semiliquid private credit vehicles spark debate over whether the turmoil stems from loan quality concerns or investor misunderstanding of liquidity limits.
It’s been impossible to escape the push to “democratize” private markets.
With average alternatives allocations in the wealth space in the low single digits, much lower than for institutions, ultra-high-net investors and family offices, the thesis has been that affluent investors have been missing out. Part of the reason, historically, was that there were too many obstacles. The prevalent private investment vehicles—traditional drawdown funds—have high minimums, irregular capital calls, complex K-2 tax reporting requirements and uneven returns—the classic J-curve.
To solve that, alternative asset managers, including Blackstone, KKR, Apollo, Ares and many others, began launching so-called semiliquid (or evergreen) funds. In the U.S., these include non-traded business development companies, interval funds, tender offer funds and non-traded REITs that invest in private equity, private credit, private real estate and real assets. While there are differences in how liquidity mechanisms work for each, the premise is the same for all: these evergreen funds have lower minimums, no capital calls, simplified 1099 tax reporting, no J-curves, and, crucially, some level of liquidity. Thus, the “semiliquid” label. For example, interval funds typically feature caps allowing around 1% of a fund’s NAV to be redeemed monthly and up to 5% per quarter. BDCs usually come with quarterly redemptions capped at 5% of NAV. And tender offer funds can issue redemptions at the discretion of their boards, with redemption periods ranging from quarterly to annual.
Until recently, the uptake of semiliquid funds had been steadily growing. There are now hundreds of semiliquid funds in the U.S. (more than half launched in the past three years), raising hundreds of billions of dollars in capital from the wealth sector annually. By year-end 2025, AUM of funds with exposure to private assets and limited liquidity had grown to over $534 billion, adding roughly $100 billion in assets over the course of 12 month, according to Morningstar.
But the tables are now turning, starting with concerns emanating from private credit funds. As a result, what has come under scrutiny in the private wealth space is not just the overall health of the private credit sector or private markets more broadly, but the question of whether heightened redemption requests from individual investors spooked by a series of announcements from asset managers will prevent these funds from delivering the outsized returns they promised investors in exchange for limited liquidity.
The situation has created a mini doom loop. Concerns about private credit led to a spike in redemption requests exceeding the monthly and quarterly caps for semiliquid funds. The need to pay those requests leaves the funds facing the prospect of having to either raise cash, increase borrowing or sell assets, eroding fund performance and leading to even more redemption requests. Meanwhile, frustration and anger mount among investors unable to fully cash out. At the same time, there are signs that the problems facing private credit are overblown (overall defaults remain low), that many funds have sufficient liquidity to meet the monthly and quarterly redemptions for some time and that they can emerge unscathed once the current wave of redemptions dies down.
Private Credit Stumbles
Cracks began to emerge in private credit late last year. Alarmed by bankruptcies announced by auto parts seller First Brands and subprime auto lender Tricolor Holdings, JPMorgan Chase CEO Jamie Dimon warned that a combination of looser underwriting terms, opaque ratings and illiquid vehicles could lead to a financial crisis echoing the securitized debt meltdown in the mid-2000s.
At the time, Marc Lipschultz, co-CEO of Blue Owl Capital, a major player in the semiliquid fund space, including several private credit BDCs, called on Dimon to focus on questionable loans made by traditional banks. Five months later, however, it looks like Dimon’s concerns might have been at least partially justified, with Blue Owl inadvertently setting the process in motion when it unsuccessfully tried to merge Blue Owl Capital Corp. II (OBDC II), its private non-traded BDC, with Blue Owl Capital Corp. (OBDC), its public BDC, in the fall of 2025. The move would leave investors in the former with a substantial ding to their NAV, given OBDC’s trading price. Facing a backlash, Blue Owl Capital cancelled the merger. Private credit investors, however, were left rattled.
In recent weeks, the maelstrom has intensified.
First, Blue Owl announced it was closing quarterly redemptions on OBDC II in favor of quarterly return of capital distributions on Feb. 18.
Coming on the heels of bad news from another private credit BDC, BlackRock TCP Capital Corp., which reported that in the fourth quarter of 2025, writedowns on some loans in its portfolio reduced its NAV by 19%, Blue Owl’s announcement further spooked investors who were already feeling nervous about evergreen private credit funds. In the fourth quarter, redemptions as a share of beginning-of-the-quarter NAV in the non-listed BDC space almost tripled from the quarter prior to 4.71%, according to Robert A. Stanger & Co.
Among BDCs with aggregate NAV of over $1 billion, redemptions rose by 217% quarter over quarter. In the first quarter of 2026, private equity giant Blackstone lifted quarterly redemption limits on its flagship BCRED fund from the usual 5% to 7.9% to meet rising investor demand. The firm’s shares fell to a temporary two-year low when its earnings report came out, even while Blackstone President Jon Gray insisted that the quality of the loans in the fund’s portfolio was solid.
Since then, Blue Owl has made moves to try to stem the bleeding. Earlier this month, it announced $1.3 billion in refinancings to support its middle-market lending capacity. In addition, its board of directors recommended that shareholders reject an unsolicited tender offer from Saba Capital Management and Cox Capital Partners on OBDC II. The two firms had made an offer for up to 8 million of the BDC’s shares, albeit at a price (about 33% lower than OBDC II’s implied NAV) that would represent a steep haircut for investors.
In addition, the pain has now spread to private credit interval funds. Cliffwater LLC, which operates the largest U.S. private credit interval fund, the $33 billion Cliffwater Corporate Lending Fund, received redemption requests on 14% of its shares in the first quarter—double the fund’s maximum quarterly cap of 7%.
As news of Blue Owl’s decision to halt quarterly redemptions in favor of capital distributions spread, Blue Owl, Blackstone, BlackRock, Ares Management and other publicly traded managers of private credit BDCs saw their shares slide substantially. As of midday on March 25, Blue Owl stock was trading at $9.02 a share, down almost 60% from a year before. Blackstone’s stock price was down to $109.14 per share, compared to $151.21 per share on the same day in 2025. Ares was trading at $107.10 per share, down roughly 48% from mid-March 2025. The VanEck Alternative Asset Manager ETF (GPZ) has recently been trading near its 52-week low.
“There really isn’t a faster way [for investors] to express a negative view—they can’t short [the fund],” said Brian Moriarty, principal, fixed-income strategies, at Morningstar. “So, a lot of the expression is coming through on the equity of the asset manager.”
Panic Leads to Redemption Requests
A fundamental question at the heart of the ongoing firestorm is how much of the issue is about underlying loan quality for private credit firms and how much of the panic is about the fact that these semiliquid vehicles are exceeding their redemption caps, leading to consternation among investors unable to withdraw their funds as quickly as they would like.
Moriarty noted that DBRS Morningstar, the credit rating arm of the company, reported that in its coverage universe, downgrades on private credit have been outpacing upgrades at a rate of “three- or four-to-one.” However, in a research note released on March 5, DBRS stated that, despite elevated redemption requests in the fourth quarter of 2025, it still expects private credit BDCs to remain a significant growth engine for investors. Credit losses among the non-traded BDCs were minimal, and their secondary assets are selling at close to par value, the researchers wrote.
Meanwhile, the chair of Partners Group, another alternative asset manager that’s moved into semiliquid funds, recently warned that private credit default rates could double, from a current annual average of around 2.5%. Many of the concerns stem from loans to software companies that may be disrupted by artificial intelligence.
At this time, there is no evidence that Blue Owl’s private credit BDCs are experiencing widespread issues with the loans in their portfolios, although the funds’ opacity makes it difficult to gauge how they valued those loans and what they are basing their NAVs on, analysts say. In March, Blue Owl returned about 30% of OBDC II’s NAV to shareholders via capital distribution funded through asset sales. Fitch Ratings left the fund’s rating unchanged at BBB-/stable, even as it remained unclear how frequently Blue Owl planned to repeat such capital distributions in the future.
Aside from private credit fundamentals, issues are mounting on the capital-raising and redemption side. When it comes to the private credit BDC sector overall, analysts at Robert A. Stanger & Co. expect it will experience a situation similar to what happened with non-traded REITs in 2022, when fundraising took a significant nosedive while redemption requests ticked up, leading to a contraction.
“We certainly think that’s going to happen with BDCs. Fundraising peaked in the first and second quarters of 2025, and it has declined month-over-month since,” said Michael S. Covello, executive managing director at Stanger & Co. “And we just saw in the fourth quarter, redemption rates have gone up 2x in BDCs, so we think that’s starting to happen, and BDCs will be in contraction mode.”
Covello, who said he expects redemption volumes to jump further in the first quarter of 2026 when BDCs’ earnings reports come out sometime in April, laid out the challenges this would pose for investors remaining in the funds, even if the funds’ assets don’t see rising defaults or delinquencies. To meet rising redemption requests, asset managers typically have two choices—either sell assets or borrow against their lines of credit. If the asset manager takes on more leverage, that negatively impacts the remaining fund investors. If the asset manager sells assets to pay their redemption obligations, “we never know—were those the best of the best assets [in the fund] that were sold to make the market feel comfortable? If that’s the case, as the remaining investor in that fund, I now have assets that are not the best of the best,” Covello said.
The nature of private credit, however, also means that asset managers are collecting income on the vast majority of the portfolios that are performing. (Most also have some liquidity on hand at all times to meet redemptions and can tap financing as well.) Given the typical terms of assets, meeting 5% redemptions per quarter roughly matches how loans in portfolios are repaid and mature. That’s why some believe that while redemption requests are hitting caps now, over time, funds will be able to meet all of them. It just might mean investors need to wait several quarters. The worst-case scenario for managers, however, is being forced to sell assets, perhaps at steep discounts.
In addition, BDC asset managers tend not to disclose how they estimated the value of the sold loans in their NAVs. “Was I carrying them at 80 cents on the dollar in the NAV and sold them at 80 cents at NAV-neutral? Or did I have them at par and sold them at 80 cents on the dollar? Again, the remaining investor is going to be stuck with the permanent loss,” Covello noted.
Finally, if everyone in the private credit BDC space is facing rising redemptions and selling off loans to meet them, the selling pressure in itself will drive down pricing in a “self-fulfilling prophecy of decline.” “That’s what would concern me if this does pick up,” he said.
What’s happening in the sector is “a paradigm of the challenges of private assets, and private credit in particular,” according to Luka Blasi, head of private markets and regulatory solutions at S&P Global Markets Intelligence.
“Blocking redemptions is a liquidity management tool available to private credit funds (and one of the downsides in investing in private assets compared to say, mutual funds), but it creates a risk for investors that might be deprived of liquidity in a moment when they need it,” Blasi wrote in an emailed response. “This lack of liquidity is partly linked to the superior premium investors receive to hold this type of asset.”
According to a Morningstar research report published this February, in spite of semiliquid funds’ much-touted liquidity features, investors need to commit to them for at least seven to 10 years to earn the minimum 2% difference in yield compared to what they would earn in the public markets.
Advisors Weigh In
Blasi’s comments (and those of at least one RIA chief investment office Wealth Management spoke to) echoed those made by Carlyle Group CEO Harvey Schwartz, who said that the term “semiliquid funds” created a perception issue for asset managers during a call with analysts in January. “The industry did itself a bit of a disservice calling the vehicles semiliquid. We just should have called them ‘sometimes not liquid at all,’” he said.
Financial advisors Wealth Management spoke to agreed with that assessment, even as they dismissed concerns that private credit as an asset class could be facing a crisis. For example, Brian Spinelli, co-CIO at RIA firm Halbert Hargrove, which manages $3.6 billion in AUM and allocates to private credit through interval funds and tender offer funds, said private credit will still offer individual investors outsized returns in the long term.
One important distinction between interval funds and other evergreen fund structures is that interval funds are required to pay out their promised redemptions, up to the cap amount, no matter what. BDCs can gate redemptions if their boards approve it. Tender offer funds, which rely on their boards to decide when to pay redemptions, can do so as well. Interval funds’ NAVs are also priced daily, while tender offer funds’ NAVs are priced monthly or quarterly. That also sets these funds apart from public and private BDCs, where NAV valuations are less transparent and largely determined by the asset managers themselves.
“Private credit as an asset class is still pretty small relative to the public debt markets and has a lot more room to grow,” said Spinelli. “So, I think over the long term, people should still get a premium out of it.” That being said, “I don’t think they should expect that in every single calendar year or every single short-term period. And I don’t think you are going to be able to time it, just as you can’t perfectly time when to get into and out of equities either,” he added.
Omar Qureshi, managing director at Hightower Signature Wealth, the RIA division of Hightower Advisors, was more blunt. He likened the rising redemptions to consumers rushing to buy toilet paper when COVID-19 first hit the U.S., even though there was no underlying shortage because toilet paper is largely manufactured in North America anyway. The rush became a self-fulfilling prophecy.
“To me, that’s private credit. A lot of individual investors and a lot of financial advisors became fearful of private credit,” Qureshi said. “There were some companies that had credit issues last year—Tricolor comes to mind. Ironically, these were not even private credit loans, but bank loans. And there was this notion that AI was going to put all software companies out of business, and software in private credit is a large allocation. And the more illiquid something is, the more it seems like people panic and want to get out while they can.”
However, asset price fluctuations are perfectly normal in any kind of investing, Qureshi noted. Without evidence of an economic event that was causing widespread loan deterioration across multiple segments of the market, “private credit became some type of a boogie man,” he noted. “To me, these massive redemption requests are just irrational.”
Still, Qureshi, whose firm allocates to private credit BDCs, added that “over the past six or seven years, I personally have been pitched more private credit funds than anything else in my inbox by a factor of 10.”
Not all of those funds are backed by high-quality loans, and some were launched by asset managers with little experience in the sector, he said. In fact, he guessed there were more low-quality fund managers than good ones in private credit. Funds holding lower quality loans in less diversified portfolios with limited access to lines of credit—“and I think there are a lot of them”—will suffer, he predicted.
They will likely face the scenario laid out by Stanger’s Covello, in which rising redemptions leave remaining investors worse off. Funds run by experienced asset managers with quality portfolios, sound underwriting and institutional backing—Qureshi pointed to Blackstone executives contributing their own money in order to meet all the redemption requests in BCRED in the first quarter, even though they could have capped the redemptions at 5%—will do just fine, he said.
But an even bigger issue than asset manager quality or sound underwriting, in Qureshi’s view, is that the only investors who should be allocating to private credit funds are those who will never need their money back.
“I don’t know what percentage of redemption requests today are occurring because people are panicking about the notion that they won’t be able to get their money out soon,” he said. “Remember, ‘Every time that Wall Street comes up with a new mousetrap, you are the mouse.’ They bring you all these products, and they have sophistication to them, and they have limitations—in this case, redemptions—but they market them as great products that everybody needs. You need to go in with a healthy dose of skepticism as an advisor in terms of who you put these things into and which products you utilize.”
C. Zach Ivey, CIO at Savant Wealth Management, an RIA with close to $30 billion in AUM, agreed with that assessment. Savant Wealth has had allocations to private credit interval funds for close to a decade. Two things can be true at the same time, Ivey noted—some of the concerns about private credit funds’ potential overexposure to the software sector and AI disruption are legitimate, and there will be funds that might feel the pain down the line. However, the headlines about rising redemption requests for private credit funds suggest that some advisors and their clients have a fundamental misunderstanding of what a semiliquid vehicle can offer and what it can’t, he said.
“We are buying private assets. They don’t have a market. You should know that what you are buying is not a liquid asset. The semiliquid title simply [refers to] the fact that it’s not a fund that you have to wait for seven years for the fund to disband to get your money back,” Ivey said. “We have quarterly liquidity windows, but that’s limited. A lot of the handwringing is about a misunderstanding of what semiliquid means and shame on advisors or firms who have not properly disclosed that to investors or who have gone into it themselves without fully understanding the asset they are investing in.”
