Imagine you invest your savings in a private credit fund that promises a high interest rate, but only permits withdrawals each quarter. When you submit a redemption request, instead of receiving your money, you receive a letter stating that the fund will not return your money this quarter and cannot confirm a timeline for when it will.
In this article, we examine the difference between illiquid investments, such as private credit funds, and investments in listed companies that trade in liquid public markets.
Key Points
- The global private credit market has grown to nearly $2 trillion. A significant portion of this capital is now held by individual investors.
- Private credit funds lend money to companies that are not listed on public markets. These loans cannot be easily sold and do not have daily market pricing.
- When investors request their money back simultaneously, private credit funds face a structural constraint: the underlying assets cannot be sold quickly enough to meet redemption demand.
- Blue Owl Capital Corp II, a private credit fund, permanently halted quarterly redemptions in February 2026 after withdrawal requests exceeded the fund’s quarterly limit.
What Is Private Credit?
Private credit funds raise capital from investors, including institutional investors such as pension funds, and lend that money to companies that cannot access traditional bank financing or public debt markets. These borrowers typically pay higher interest rates to compensate lenders for the additional risk and illiquidity.
The U.S. private credit market has grown to approximately $1.3 trillion; globally, the figure reached close to $2 trillion as of mid-2024, according to the Federal Reserve. As the industry expanded rapidly, fund managers increasingly marketed these funds, once available primarily to institutional and professional investors, to individual investors.
Because borrowers pay higher interest rates, private credit funds have offered investors the prospect of higher yields than those available from more liquid public market instruments. This high income premium proved magnetic to individual investors.
However, the structural reality of private credit is straightforward: a loan to a private company cannot be readily converted into cash. A fund can return capital to investors only when:
- The borrower repays the loan, or
- The fund sells the loan to another party — a process that is often slow, opaque, and dependent on finding a willing buyer at an acceptable price.
When fund managers offer quarterly redemptions, they are effectively promising periodic liquidity against assets that are inherently illiquid.
Blue Owl Capital Corp II
Blue Owl Capital Corp II (OBDC II), launched in 2017, targeted U.S. retail investors. Its portfolio consisted primarily of direct loans to private, middle-market companies.
OBDC II permitted investors to redeem up to 5% of their holdings per quarter. In 2025, redemption requests rose by approximately 20% year-on-year and consistently exceeded the quarterly limit imposed by the fund.
In February 2026, Blue Owl permanently ended quarterly redemptions. Investors in OBDC II no longer have the ability to request their capital back at intervals of their choosing. Instead, capital will be returned through distributions funded by loan repayments, asset sales, and other transactions, at a pace determined by the fund — not by the investor.
The Liquidity Gap
This situation illustrates what is known as a duration mismatch: the fund promised quarterly access to capital while holding assets that may take years to monetise.
The contrast with listed equities is direct. A share in a quality company listed on a public exchange has a continuously quoted price, visible to all market participants and updated in real time during the trading day. An investor who requires liquidity can sell at the prevailing market price, with settlement typically occurring within a few business days.
Private credit offers a higher interest rate over listed bonds and equities. That premium compensates investors for accepting illiquidity and for accepting that, in periods of stress, redemption terms may be restricted or suspended.
At AXIAM, we invest in quality businesses listed on public exchanges as the foundation of long term wealth building. Liquidity and price transparency are not incidental attributes of public markets. They are structural features that allow investors to retain control of their capital.
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