By Amey Stone
Private-equity firms often say limits on fund redemptions are a feature, not a bug. Many funds that hold illiquid assets, such as private credit, allow investors to cash out once a quarter, and -- if total requests reach more than 5% to 7% of assets -- will only fill a portion of each request. The thinking is that those provisions protect the fund's remaining investors from a rush to the exits that would force managers to sell underlying securities at fire sale prices.
But that feature seems a lot more buglike when funds actually limit redemptions -- as a handful of private credit funds offered by companies including BlackRock, Apollo, and Ares have done recently. Investors who find themselves stuck in the funds aren't too happy. Bloomberg estimates there is nearly $5 billion in assets in those funds that investors would like to withdraw. And more investors are likely to try to pull money out of these funds now that the economy is weakening and default rates are climbing.
Investors stuck in these funds may be able to get their money out using other methods, however. And financial advisors also have a variety of strategies to limit the potential impact on portfolios of owning troubled assets. Despite this year's flurry of headlines, it isn't new for private funds to limit redemptions, and many advisors have dealt with this issue before. Below are some techniques they suggest exploring for investors who want out of private credit.
Look for workarounds. Requesting required minimum distributions, or RMDs, may be a good option for investors who hold these funds in an individual retirement account and are over age 73, says Jeffrey L. Stock Jr. of Tenet Wealth Management, a member of the Advisory Services Network. RMDs are required by law, and asset managers generally need to honor those requests. Stock says he has used this method successfully with new clients who came to him holding gated funds that he didn't consider suitable for their goals.
Other provisions may allow for exits when a client has run out of money and requires government assistance or when the owner of the position in the fund has died, Stock says. Investors should check fund documentation carefully. Stock says, however, "There aren't many great backdoor methods."
Find a buyer. There may be ways to sell private credit funds, but investors should expect to receive a sizable discount to net asset value, or NAV, if they sell now, says Kurt Nye, chief investment officer at MAI Capital Management.
To get a sense of the likely discount, consider that publicly traded business development companies are trading at around a 20% discount to NAV. Or this: hedge fund manager Boaz Weinstein is currently offering as little as 65 cents on the dollar for stakes in certain private credit funds managed by Blue Owl, an asset manager specializing in private funds.
Still, for someone who really needs the money, a sale may be worth exploring. For clients of wealth managers, more so-called liquidity providers have emerged as this channel has grown.
Alternative investment platform iCapital works with a company called Tangible Markets to create a secondary market where advisors and their clients can buy and sell shares of private markets funds. Other firms establishing similar businesses include Moonfare, and Ben, which operates the trustben.com website. One industry source says these liquidity providers may not have a lot of buying and selling activity taking place yet.
What about secondaries? This term usually refers to institutional investors, such as pension funds, selling large stakes to other institutional investors on the secondary market. Advisors with ultrahigh-net-worth clients or large pooled positions of $5 million or $10 million may be able to take part. "There's not much in the $150,000 to $200,000 range," says Joe DaGrosa, CEO of Axxes Capital and the co-author of The Financial Advisor's Guide to Private Investments.
"It is important to monitor these developments closely and evaluate secondary sale opportunities accordingly," says Ted Neild, CEO and chief investment officer at Chicago-based Gresham Partners. "This can be difficult, but doing so from a calm decision-making state and without dire need for liquidity increases the chances for a better outcome."
Portfolio-level fixes: Here's where advisors can really shine, allowing clients to stay invested in a fund that may hold up just fine in the long run while reducing the temporary negative impact of staying in a slumping asset class.
Some advisors look to invest in sectors that will do well precisely when another one is doing badly. For example, says DaGrosa, when credit defaults rise, that may be a good time to consider investing in distressed credit, sometimes referred to as opportunistic credit. "Good managers here can capitalize on this market dislocation," he says.
Shorting is rarely a good idea for most investors, but Bloomberg reported that Goldman Sachs and JPMorgan Chase have come up with ways to allow hedge fund clients to bet against the private credit space.
Nevertheless, investors should be careful about buying another illiquid vehicle to compensate for being stuck in one, warns Stephen Tuckwood, director of investments at Modern Wealth Management. He calls this a "liquidity stack" error. "Once a position is gated, focus on rebuilding true liquidity elsewhere in the portfolio," he says. "Do not compound the issue by reallocating into other semiliquid strategies as substitutes, particularly those with similar asset and redemption profiles."
If stuck in an illiquid fund, Stock says he'll work to limit exposure to the same kind of risk in publicly traded parts of a portfolio. For example, he may reduce high-yield or bank loan allocations if a client is stuck in private credit. "We'll adjust the publicly traded allocation to get 100% of the asset class exposure we're looking for," he says.
Prod the fund manager to do better. Private credit fund managers may have options that can improve outcomes for their investors, writes Barron's Andrew Bary . Cutting fees is a good example, for starters. They can also find ways to meet more redemption requests and perhaps return capital to investors "in kind."
Financial advisors may have some leverage with fund managers, particularly if their clients have a lot of assets at the firm. "Join or form an investor committee," says Jordan Waxman, founder and managing partner at Nucleus Advisors. A really troubled fund could close and return capital to investors at NAV. "Collective pressure may help to distribute or wind down fund assets."
Pursue legal recourse. Investors who see signs of fraud or a breach of terms and have sizable positions may want to consider legal action. Options, says Waxman, include filing a legal claim or a complaint with a regulatory authority, or demanding mediation or arbitration, "especially if there are proven damages from the gating action," he says.
In most cases, investors are better off financially using other methods, says Stock, including gradually getting out of prorated funds over time. He advises requesting redemptions every quarter and early in the window until the position is fully exited.
But that could take time. Issues in private credit are just emerging. As Neild says, "Historically, gates tend to last longer than most expect."
With reporting by Steve Garmhausen
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 01, 2026 10:55 ET (14:55 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments