The recent surge in redemptions hitting major U.S. credit managers is less a reflection of asset quality than a fundamental flaw in fund architecture. At the heart of the issue is a pricing mismatch: the net asset value (NAV) at which funds mark their portfolios often sits higher than the prices at which their shares trade on the secondary market. This discrepancy has created a perverse incentive for investors to redeem directly from the fund rather than sell in the open market—effectively realizing a gain through the exit itself.
Alexandre Muller, a partner at the Brazilian firm JGP, notes that this "arbitrage" opportunity is driving the current exodus. The structural tension is being felt most acutely at firms like Morgan Stanley, which recently moved to limit redemptions after a spike in withdrawal requests. It is a classic liquidity trap rewritten for the private credit era, where the promise of stability through infrequent valuation meets the cold reality of market volatility.
The trend has drawn increasingly sharp critiques from the industry’s senior figures. Jamie Dimon, CEO of JPMorgan Chase, has drawn parallels between the current excesses in private credit and the systemic vulnerabilities that preceded the 2008 financial crisis. Meanwhile, Oaktree Capital’s Howard Marks has pointed to the psychological drivers of the boom—envy and the fear of missing out—as indicators that the sector may be overextended. As these vehicles face their first significant test of liquidity, the focus is shifting from the yields they promised to the mechanisms that hold them together.
With reporting from InfoMoney.
Source · InfoMoney
