The Private Credit Illusion: Why 'Semi-Liquid' Was Always a Myth
There’s a saying in finance: Liquidity is like oxygen—you don’t notice it until it’s gone. And right now, the $1.8 trillion private credit industry is gasping for air. At the recent Milken Institute conference in Beverly Hills, the titans of private markets finally admitted what many of us have known for years: the term ‘semi-liquid’ is a marketing mirage. Personally, I think this is less of an epiphany and more of a long-overdue reality check.
The Myth of Semi-Liquidity
Let’s start with the elephant in the room: private credit funds were never semi-liquid. They were, and still are, illiquid. EQT AB CEO Per Franzen’s prediction that the term ‘semi-liquid’ will disappear isn’t just a semantic shift—it’s an acknowledgment of a fundamental truth. What makes this particularly fascinating is how the industry has been selling these products to retail investors as if they were somehow more accessible than traditional private equity. In my opinion, this was always a dangerous game. Retail investors, lured by the promise of higher returns, were never fully informed about the risks of illiquidity.
Retail Investors: The New Scapegoats?
The recent collapses of Tricolor Holdings, First Brands Group, and Market Financial Solutions Ltd. sent shockwaves through the market. But what’s more interesting is how the industry is now pointing fingers at retail investors. PJT Partners CEO Paul Taubman’s comment that private credit is ‘an institutional product, not a retail product’ feels like a convenient excuse. From my perspective, this isn’t just about retail investors being skittish—it’s about the industry’s failure to educate and manage expectations. Retail investors aren’t the problem; they’re the symptom of a larger issue: the misalignment between product design and investor appetite.
The Institutional Divide
One thing that immediately stands out is the growing divide between institutional and retail investors. Ted Koenig of Monroe Capital’s concern about the pressure to scale portfolios is spot on. If you take a step back and think about it, the push to bring retail money into private credit was always going to create tension. Institutional investors, who have long dominated this space, are now wary of sharing the table with retail players. This raises a deeper question: Can private credit truly serve both markets without compromising its core principles?
The Regulatory Wild Card
The U.S. Department of Labor’s recent move to allow alternative assets in retirement plans was supposed to be a game-changer. But what many people don’t realize is that this could exacerbate the very issues the industry is grappling with. While proponents argue that retail investors can achieve higher returns, the lack of liquidity and transparency remains a ticking time bomb. If you fast forward a decade, it’s not hard to imagine a scenario where retail investors, trapped in illiquid assets, demand their money back en masse.
The Future of Private Credit
Not everyone is doom and gloom. Frederick Pollock of GCM Grosvenor believes retail investors are here to stay, and I can see his point. The allure of higher returns will always attract retail money. But what this really suggests is that the industry needs to reinvent itself. Raoul Hughes of Bridgepoint Group is right—the industry hasn’t found the right product for retail yet. Perhaps the solution lies in creating hybrid structures that offer better liquidity without sacrificing returns.
Final Thoughts
As Alan Schwartz of Guggenheim Partners warned, there’s likely more distress ahead. The private credit industry is at a crossroads. It can either double down on transparency and education or continue to patch over the cracks with marketing jargon. Personally, I think the latter is a recipe for disaster. If the industry wants to survive—and thrive—it needs to stop selling illusions and start building trust. Because in the end, liquidity isn’t just about cash flow; it’s about credibility.
