Exits blocked at private-credit funds

Investment Analysis Clubs Macro Economic Trends and Risks
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We all know what happens when exits are blocked from a room in the event of a fire. Desperation!

What happens to the price of an asset in the case of desperation? The value drops.

What happens if a fund blocks the doors when investors want to cash out but the rules allow the fund to misrepresent the NAV? That’s what’s happening now to some private-credit funds.

https://www.wsj.com/finance/investing/whats-a-private-credit-fund-worth-when-the-money-is-locked-up-c93c687d?mod=finance_lead_pos3

What’s a Private-Credit Fund Worth When the Money Is Locked Up?

Redemption requests at managers like Blue Owl and Cliffwater are triggering a domino effect among funds

By Jonathan Weil, The Wall Street Journal, April 3, 2026

…
That private-credit manager on Thursday said it was again limiting redemptions in one of its funds. The result is that investors looking for an exit will get less than a quarter of the money they are requesting.

This poses a multilayered problem for private-credit funds and investors in them. Namely, how much is a fund worth if you can’t get all your money out of it, and the fund, in turn, can’t get its own money out of another fund?

Put another way, should the funds value their investments in other funds based on what those funds’ managers say they are worth, a figure known as the net asset value, or NAV? Or should the values reflect the prices that investors could actually sell them for, taking liquidity restraints into account?.
Accounting rules say the funds are allowed to rely on the official NAVs. And for everyday investors, that is the trouble…

The usual path for shareholders who want out of a fund like Cliffwater—or a nontraded BDC like the Blue Owl or Ares funds—is to sell their shares back to the funds. When the funds’ repurchase offers become oversubscribed, that means their investors can’t redeem their entire stakes in full at the official NAV. If the investors tried to sell to anyone else, they most likely would have to sell at a discount…[end quote]

The investment manager David Bahnsen, who writes “The Dividend Cafe,” has written disparagingly of investors who expect these private-credit funds to be liquid like money markets. He says it’s clear from the prospectus that the funds invest in long-term debt that is meant to be held for the long term. Investors in these funds are supposed to be sophisticated enough to know that a “run” on this kind of “shadow bank” is unreasonable.

That being said, it’s very concerning that the NAV of these private-credit funds is opaque and there is no way to determine the actual market value…except to try to sell shares on the open market which would seem like a desperation move and would cause discounting. But the fund is an unregulated “shadow bank” and can keep the NAV at its arbitrary level instead of marking to market like a normal bond fund.

I wouldn’t invest in one of these! It’s very concerning that some government officials are trying to make them available for investing 401(k)s.

Wendy

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@WendyBG

This query did not tell me how much money in US Treasuries is in play. The underpinnings of many Private Credit managers are US Treasuries.

The financial world has lost faith in Treasuries. We will go into a deep economic depression. I am going to move my direct deposits and the rest of my money to a safer bank.

Yes, private credit managers may hold U.S. Treasuries, though it is not their primary investment focus. While private credit strategies center on lending directly to private, middle-market companies (often to gain higher yields than public markets), U.S. Treasuries are used in several capacities within their broader portfolio management.
Blackstone
Blackstone
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How Private Credit Managers Utilize U.S. Treasuries:
Liquidity Management: Private credit funds are often illiquid, with capital locked up for five to seven years. Managers may hold cash equivalents, including Treasury bills, to manage liquidity, settle transactions, and hold “dry powder” (capital committed but not yet invested).
Collateral and Hedging: In some structures, particularly those employing leverage, U.S. Treasuries may be held as part of a portfolio’s collateral or for risk management purposes.
Asset-Backed Finance (ABF): Some private credit portfolios invest in asset-backed finance, which, depending on the strategy, may include high-quality, liquid securities to complement direct lending.
Federal Reserve Board (.gov)
Federal Reserve Board (.gov)
+4
Contextual Role in Portfolios:
As a Complement, Not Alternative: While they hold them, U.S. Treasuries are generally considered a “core” holding (traditional safe-haven asset) used to complement the “alternative” (higher-risk) focus of the private credit fund.
Performance Benchmark: Private credit managers often compare their yield (often 7%–10% or more) against the risk-free rate, which is represented by U.S. Treasuries.
Coalition Greenwich
Coalition Greenwich
+4
While top managers like Ares, Blackstone, and Oaktree focus on direct lending (private loans), their portfolio management involves holding a range of assets to manage risk, including safe, liquid, low-yield instruments like U.S. Treasuries.
Federal Reserve Board (.gov)
Federal Reserve Board (.gov)
+4

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@Leap1 my grandparents taught me to split my money among several banks, always staying below the FDIC insurance limit. That was because of their experience of bank failures during the Great Depression.

I did that in 2007-2008. In fact, three of the banks where I had high-yielding CDs failed. All of my accounts were safe since the FDIC did pay the insurance. However, the CDs were terminated so I only got cash back.

Wendy

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I strongly question that the FDIC exists when you need it this time.

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I have confidence that the Federal Reserve would back up the FDIC if necessary. It’s essential to economic stability to maintain confidence in the banks for small savers. That’s why the FDIC was started in the first place.

The Fed actually bailed out Silicon Valley Bank depositors who were over the FDIC insurance limit in March 2023. You can see the little peak in Fed assets when the “interrupted their usual program” of tapering their assets to create the money to bail out SVB.

So don’t worry.
Wendy

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To me the key word is “private.” These are professional money managers making deals w each other. They are supposed to know what they are doing.

As long as everyone is making money and collecting big bonuses, everything is wonderful. But speak of possible losses and the earth shakes.

Key question is are they too big to fail. In a pinch will Feds bail them out?

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Of course I know all of that, but we may be about to turn the page on a lot of our financial system at least the government’s role in it.

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This is circulating. Major cuts.

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If we default the fdic won’t be honored.

Assets and income for the fed and fdic would be gone in a default.

Key Details on FDIC Funding & Fed Support

  • Primary Funding Source: The FDIC is funded by premiums paid by banks and interest on U.S. government securities, not congressional appropriations.
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I’m pretty sure that you get the principal and the interest earned (to date) from the FDIC. But if the rate was good, you don’t get to earn that rate anymore. I suppose on average, the banks offering the highest rates are the ones more likely to fail than the ones offering lower rates. I still buy the highest rate CDs I can find.

Yep. If the FDIC fails, and the Federal Reserve fails, or the US defaults, then EVERYTHING blows up and the financial world (literally the entire world) doesn’t exist the way at had previously. That’s why it’s kind of funny to see people “move out of US holdings and into Europe/Asia holdings” to protect themselves against a US financial breakdown.

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Who says tptb are against that. They don’t want to pay the debt.