Redemption gates are critical for managing liability-side risks like investor runs, giving funds time to manage outflows. However, they are ineffective against asset-side problems. If underlying loan portfolios suffer high default rates, the fund's value will still deteriorate, and gates can't prevent those ultimate losses.

Even if all non-traded BDCs hit their maximum redemption limits, the resulting loan sales from their liquid buckets would amount to about $5 billion per quarter. This is a small fraction of the $85 billion syndicated loan market's quarterly trading volume, making a systemic price disruption from these redemptions highly unlikely.

Goldman Sachs avoids the term "semi-liquid" because it provides false comfort. The liquidity gates on these evergreen funds are a feature, not a bug, designed to prevent fire-selling assets. They are most likely to be activated when investors are clamoring for redemptions.

Funds offer investors quarterly liquidity while holding illiquid, 5-7 year corporate loans. This duration mismatch creates the same mechanics as a bank run, without FDIC insurance. When redemption requests surge, funds are forced to sell long-term assets at fire-sale prices, triggering a potential collapse.

Contrary to popular fears, private credit has structural advantages over banks. With retail investors comprising only ~20% of funds (which have redemption gates), the asset-liability mismatch is far lower than in the banking system, which relies on demand deposits to fund long-term loans.

The structure of modern private credit vehicles, particularly non-traded BDCs, replicates a classic asset-liability mismatch by funding illiquid loans with potentially liquid investor capital. This fundamental flaw predictably leads to liquidity crunches during redemption waves, which can escalate into broader credit crises as forced selling begins.

Non-traded Business Development Companies (BDCs) intentionally have liquidity limitations. This design prevents a fire sale of illiquid assets during market stress, protecting the vehicle and the broader system from forced selling and cascading losses. It is a deliberate structural protection.

Permira's Ian Jackson argues that redemption limits in retail-oriented credit funds are working as intended to manage the mismatch between investor demand for liquidity and illiquid private loan portfolios.

Fears of a systemic private credit collapse are mitigated by a key structural feature: the manager's ability to cap redemptions at 5%. This prevents a forced mass liquidation of assets to meet redemption requests, containing the liquidity crisis to a small part of the market and averting a downward price spiral.