13th March 2026
Private credit funds and the semi-liquid structures that are widely used to access the asset class have been in the headlines of late, and not for good reasons. Underlying defaults remain low, but some well publicised ‘cockroaches’ (First Brands, Tricolor) combined with worries regarding heavy exposure to software businesses potentially vulnerable to AI disruption have sparked concerns amongst investors. This has led to outsized redemptions at a number of high-profile private credit funds including those managed by Blue Owl, Blackstone and Blackrock. In each case, redemption requests for Q1 2026 have meaningfully exceeded the 5% quarterly limit. In response, Blue Owl have permanently halted redemptions and effectively placed the fund in question into managed wind-down, Blackrock have temporarily gated their vehicle, and Blackstone, whilst honouring redemptions, have only been able to do so with assistance from the management company and employees who stumped up $400m to help cover sell orders.
We wrote about the merits of private assets in a blog last summer, extolling the return and diversification benefits private assets can bring to a multi-asset portfolio. We also discussed the different ways of accessing these markets (limited life private funds, investment trusts, semi-liquids), and offered a hopefully balanced overview of the advantages and disadvantages of each (Funds Crescendo – The Point of Investing in Private Assets ).
Recent developments at those large private credit funds are a timely reminder of some of the risks associated with evergreen structures and the inherent mismatch that comes from investing in illiquid underlying investments whilst offering investors limited periodic liquidity (typically quarterly). Growth in semi-liquid funds has been rapid with traditional and alternative asset managers alike marketing private asset products through a broader array of distribution channels, including retail. This growth has helped camouflage the structural liquidity problem, with new buyers so far more than enough to offset those heading for the exits.
What happens, however, if this reverses and a private asset fund goes from net inflow mode to net outflow? We have already seen one obvious consequence that stems from the illiquidity of the underlying portfolio – namely the limiting or suspension of redemptions. Unfortunately, this can often be a self-fulfilling prophecy where the gating of a fund catalyses further redemptions as investors battle to get to the front of the queue for exit. As we have seen, this in turn can have ripple effects across adjacent funds operating in similar sectors, even if the fundamentals of the underlying portfolio remain sound. This risk of shoot first (give me my cash back) and ask questions later, becomes more acute as the investor types in these vehicles become more disparate.
The semi-liquid fund structure has other repercussions for investing in private assets. Many institutional investors have historically allocated to the space as much for the lower volatility and diversification benefits as the potential return uplift. For limited life private funds, underlying portfolios are only marked periodically and will often look through the vagaries of changes in valuation (i.e. earnings multiples, credit spreads) that drive much of the short-term fluctuations in public markets. The empirical track record of private equity exits at significant uplifts to carrying value is a case in point, implying that value creation isn’t recognised in private funds in a linear fashion. This valuation methodology has resulted in private asset portfolios exhibiting lower volatility than public markets and helps mute correlation with mainstream equities and bonds, plumping risk-adjusted returns and optical diversification benefits. Some refer to this process as ‘volatility laundering’, highlighting that private credit and private equity funds (a significant proportion of semi-liquid AUM) own portfolios which ultimately are exposed to the same risks and economic factors as listed equities and traded corporate bonds. Crucially, the mirage of volatility laundering doesn’t really work for the semi-liquid structure where the provision of quarterly liquidity under which buyers and sellers transact at a set NAV, demands timely, accurate and fair valuations.
Redemptions at semi-liquid funds can also starve managers of capital, inhibiting their ability to support underlying companies that require further funding or to refinance a problematic bilateral loan where a longer-term fix might be the best way to protect value. Admittedly, a few investment trusts have faced similar issues, but for those in steady state and operating with semi-permanent capital, not facing the dilemma of honouring redemptions but being a forced seller of assets to do so, offers material benefits.
This is not to denigrate semi-liquid funds. They remain a good way of accessing private assets for certain investors and particularly those with appropriate time horizons and who are cognisant of the inherent liquidity risks. The channels through which these funds are distributed remain critically important.
Another way of accessing private assets is via investment trusts where the London market offers exposure to a wide range of sectors including private equity and private credit, but also infrastructure, renewables and shipping. Yes, these vehicles come with the short-term volatility of the equity wrapper, but the permanent capital structure provides the manager with significant advantages when it comes to maximizing portfolio value. Currently, they are also a compelling value play, offering exposure to private assets via fully invested portfolios where share prices trade at steep discounts to net asset value. In contrast, the mere potential of future redemptions requires semi-liquid funds to run with a permanent cash buffer (often 15-20% of NAV), diluting true exposure for the investor.
The exposure to private assets in our daily dealing Hawksmoor Funds is primarily via deeply discounted infrastructure investment trusts where the underlying investments have low economic sensitivity and over the long-term exhibit low correlation with risk assets, thus bringing genuine diversification benefits. As previously explored (Funds Crescendo – Liquidity, Volatility and other Interesting Things), when it comes to alternative investment trusts we accept the pay-off between short-term volatility on the one hand and liquidity and premium long-term returns on the other. Current wide discounts and high starting yields offer an additional margin of safety in this calculation as well as a sound foundation for total returns. We are of course aware of the liquidity and fund structure constraints that different investors have to operate within, but 80p of investment for £1 of assets with intraday liquidity, versus £1 of investment for 80p of assets (and 20p of cash) seems like a straightforward choice to us.
Ben Mackie – Senior Fund Manager
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