Private Credit, Welcome To The 'Hotel California'

Redemption restrictions ('gating') have proliferated across private credit funds, raising concerns reminiscent of pre-2008 subprime turmoil and materially increasing liquidity risk for investors. The spread of gating heightens the risk of valuation pressure and forced selling in stressed markets, with potential contagion into banking and broader credit markets. Portfolio managers should reassess liquidity assumptions and stress-test private-credit exposures.

Analysis

Redemption restrictions ('gating') have proliferated across private credit funds, raising concerns reminiscent of pre-2008 subprime turmoil and materially increasing liquidity risk for investors. The spread of gating heightens the risk of valuation pressure and forced selling in stressed markets, with potential contagion into banking and broader credit markets. Portfolio managers should reassess liquidity assumptions and stress-test private-credit exposures.