A logo for Blue Owl Capital on a Manhattan office building in February. Blue Owl alone saw US$5.4-billion in requests in the first quarter of the year.Brendan McDermid/Reuters
Have you ever tried to quickly get out of a sports arena after the game? Too many people rush to the exits all at once. That was an experience some investors - much to their dismay - had earlier this year. Those private-credit and private-debt fund unit holders discovered how liquidity can quickly vanish when too many people head for the exit at the same time.
Funds run by firms including Blackstone, BlackRock, Blue Owl, Carlyle, Apollo, and Ares faced heavy redemption requests; Blue Owl alone saw US$5.4-billion in requests in the first quarter of the year – well above what its redemption caps, or “gates,” would allow.
These funds are described as “semi-liquid,” meaning the capital invested cannot be withdrawn for a period of time and may require a notice period of up to several months. One lesson to be learned from this experience is that “semi-liquid” can be a misleading label; when market conditions deteriorate, access to cash can tighten just when investors expect it to be there.
The backdrop is a market that has grown rapidly: Morningstar says U.S. semi-liquid funds with private-asset exposure rose to about US$534-billion at the end of 2025 from about US$215-billion at the end of 2022. As the market for private investments has exploded, investors are learning the lesson that private investments sold with periodic liquidity can become far less liquid in a difficult market.
Three ways private-credit managers can weather the current crisis
The appeal of such investments is understandable. A fund advertising annual returns of 8 per cent to 10 per cent with seemingly low volatility looked attractive after years of near-zero interest rates. What felt like stability in many cases only masked a key valuation feature. Many private investments are not priced daily, so investors rarely see price swings – but that does not mean the risk is absent.
Howard Marks of Oaktree Capital, one of the most influential voices in private markets, recently traced the arc in an investor memo. Every new financial instrument, he argued, follows a predictable cycle: novelty, early success, envy from the sidelines, a flood of capital, lowered standards, and eventually stress. It is a pattern that has repeated from the dot-com era to the subprime mortgage crisis, and now to private credit.
One source of pressure has been the vulnerability of software borrowers and, more broadly, AI-exposed companies built on aggressive growth assumptions. As investors reassessed the AI trade in late 2025 and early 2026, some of those business models came under pressure and the equity cushion supporting certain loans narrowed. Oracle is a prominent example, as its heavy borrowing to fund AI infrastructure drew fresh scrutiny from credit markets.
The gating mechanisms for these funds are technically working as designed — they exist to prevent fire sales of illiquid assets. But for investors who read “quarterly redemption windows” as genuine liquidity, being told to wait feels like a betrayal, even when it has always been in the fine print. “Semi-liquid” is, at minimum, a label that can overstate how much liquidity investors actually have.
Joseph Brusuelas of RSM US, an accounting and consulting firm, said, “The non-sophisticated investor is learning a very valuable lesson,” while Matt Swain of Houlihan Lokey, an investment bank and advisory firm, warned that the dynamic “resembles a run on a bank” as frustrated investors crowd toward the exit.
The underlying danger was already captured perfectly decades ago by John Maynard Keynes: “The market can remain irrational longer than you can remain solvent.” When the exit itself is gated, access to your funds becomes the risk you might not be prepared for.
So what does this mean for investors? The first step is understanding what one actually owns. Marketing materials are not fund documents. Investors should know the specific redemption terms in the fund subscription documents – the quarterly cap, notice periods, and whether withdrawals can be suspended entirely. If a clear answer to “how and when can I get my money out?” is not available, that itself is an answer.
The second is right-sizing. Private investments can have a role in a well-constructed portfolio, but they should be balanced against genuine liquidity tolerance, not projected returns. A useful test: how long could you manage if the gates went up tomorrow and stayed up for two years? If the honest answer is “not long,” the allocation is too large.
Third, maintain genuine liquidity elsewhere. The liquid portion of a portfolio – public equities, bonds, cash – should cover near-term needs without requiring access to a gated fund. This also means stress-testing the overall plan against a scenario in which the private allocation is frozen, and demanding clarity on how the fund values its holdings, how often those valuations are updated, and what assumptions underpin them.
This doesn’t mean that today’s limits on redemption should necessarily be a reason for investors to panic. A top IMF official recently told MarketWatch that the current private-credit turmoil is unlikely to trigger a 2008-style systemic crisis, a view supported by the sector’s relatively modest role in U.S. debt markets and its lighter leverage compared with the banking system before the financial crisis. But a market can avoid systemic risks and still inflict real losses on investors who misunderstood the risk.
John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.” The same could be said of “semi-liquid” — a term that can make illiquid assets sound more palatable. Retail investors should heed the lesson and learn to read “semi-liquid” as what it often is: marketing language that makes illiquid assets sound more attractive.
Sam Sivarajan is a speaker, independent consultant and author of three books on investing and decision-making. He writes two free Substack publications on decision-making and the good life: theuncertaintyedge.com and thegoodhumanpractice.com