Private credit has spent much of the past year in the headlines. Most of the coverage has been about redemption requests, gated funds, and investors who couldn’t get their money out. It’s a fair story, but it’s mostly about one specific kind of investor.
If you’re investing with a long horizon and a disciplined allocation, the useful question isn’t whether private credit is liquid. It never was. The question is whether the credit underneath is holding up.
The Liquidity Squeeze Is a Retail Problem
The redemption pressure so far has come mostly from individual investors. Many bought into evergreen private credit funds without fully understanding what they owned. If more pressure comes, we expect it to come from the same place.
Part of the confusion is structural. Evergreen vehicles often offer quarterly redemption windows, and some investors incorrectly treat those windows as liquidity. The windows are capped, gated, and subject to the manager’s discretion, and they tend to narrow just when investors want out. Offering a redemption feature on the fund doesn’t make the underlying loans any more liquid.
Sophisticated families have accessed this asset class differently for decades, through drawdown structures with no expectation of quarterly liquidity. That’s how we approach it for our clients, and it’s why the gap between yield and liquidity hasn’t been where they’re exposed.
For a Long-Term Holder, the Gate Is Protection
We deliberately hold non-traded private credit in funds where the manager can halt or limit redemptions. That may sound counterintuitive. For a true long-term investor, though, the gate does important work. It keeps a manager from being forced to sell illiquid loans at distressed prices to meet a wave of withdrawals, and that protects the value held by the investors who stay.
The structure is doing what it was designed to do. The investors getting hurt are the ones who mistook the fund for something it never was.
Sizing and Diversification Do the Heavy Lifting
In a well-built portfolio, private credit is one part of the allocation, and a small one. We manage it alongside everything else you own, so it’s never evaluated in isolation. Its role is specific: income, capital preservation, and returns that don’t move in lockstep with public markets.
That income matters more than it may seem. In private equity and other long drawdown funds, families often wait years before they see any return of capital. Private credit produces cash every year that can support your family’s spending, giving, or reinvestment. That is a distinct role, and it’s a large part of why the asset class earns its place in a portfolio.
Spread across a handful of high-quality managers and sized appropriately within a generational portfolio, the redemption headlines become what they are for our clients: noise.
What Does Deserve Attention
The liquidity story is about investor behavior. The credit story is real, and every investor should be watching it. We’re watching four things:
- Software and AI disruption. Many private credit funds have exposure to software businesses, which are among the most vulnerable to disruption from AI. The defaults so far have come from elsewhere. Auto-parts maker First Brands and subprime auto lender Tricolor were leveraged consumer and industrial borrowers with hidden debt and opaque financing, not tech companies. The risk to software lenders lies ahead, but it’s building.
- Transparency. These loans aren’t priced daily. What you own is only as clear as the manager’s valuations and reporting.
- Collateral quality. This is where strong underwriting separates from weak, particularly for lending to service businesses facing AI disruption.
- Rising payment-in-kind (PIK) interest. PIK lets a borrower add interest to the loan balance instead of paying it in cash. When it’s agreed upfront with a healthy, growing borrower, it’s a legitimate tool. When a struggling borrower switches to it later, it’s a stress signal that can hide deteriorating credit. Its steady rise across the market points to thinner borrower cash flows.
Structure Matters as Much as Selection
Private credit income is taxed as ordinary income. That’s why we generally prefer to hold it in tax-deferred or tax-exempt accounts, which also suit an investment you won’t need to sell quickly. PIK strengthens that case. PIK interest and original issue discount create phantom income, so a taxable investor owes tax each year on interest that was added to the loan but never received in cash. Inside the right account, that problem disappears.
The investment decision and the tax strategy have to be made together, with your CPA and your investment strategy working from the same plan, not in separate rooms.
Opportunity, With Conditions
Publicly traded BDCs (business development companies) are trading at notable discounts to their net asset value. They offer attractive yields and potential appreciation for investors comfortable with more volatility. That’s not how we access the asset class for families, and we wouldn’t predict where those prices go. The discounts may reflect real pain ahead, or they may be an overcorrection. The answer depends on whether this credit cycle is nearer its end or its beginning.
The Bottom Line
Private credit belongs in a generational portfolio when it’s sized correctly, held in the right structure, and accessed through disciplined, diversified managers. The families getting hurt chose the wrong type of fund or skipped the diligence. Families that treat it as the long-term, illiquid investment it is are in a very different position.
If you hold private credit today, or are being pitched it, the right questions are about structure, sizing, and diligence. Those are the questions we work through with clients before anything else.