The catalyst for a private credit crisis will be publicly traded, daily NAV funds. These vehicles promise investors daily liquidity while holding assets that are completely illiquid. This mismatch creates the perfect conditions for a "run on the bank" scenario during a market downturn.

The yield premium for private credit has shrunk, meaning investors are no longer adequately compensated for the additional illiquidity, concentration, and credit risk they assume. Publicly traded high-yield bonds and bank loans now offer comparable returns with better diversification and liquidity, questioning the rationale for allocating to private credit.

Firms like Blue Owl showcase their role in the AI boom, raising billions for data centers. This forward-looking narrative masks a critical risk: they are simultaneously blocking investor redemptions in older, less glamorous funds. This reveals a dangerous liquidity mismatch where retail investors are trapped in the illiquid present while being sold a high-growth future.

To combat the misconception of easy access to cash, Goldman Sachs has internally banned the common industry term "semi-liquid" for its alternative funds. This linguistic shift is a deliberate risk management strategy to underscore that while these products have liquidity features, they are fundamentally illiquid and access to capital is never guaranteed.

Offering daily liquidity while pursuing a multi-year investment strategy creates a dangerous duration mismatch. When investors inevitably demand their cash during a downturn, the long-term thesis is shattered, forcing fire sales and destroying value. A fund's liquidity terms must align with its investment horizon.

Unlike illiquid private equity, private credit funds provide a steady stream of cash flow through coupon payments. This self-liquidating feature perfectly solves the liquidity needs of the private wealth channel, making it a far more suitable and popular alternative asset for that investor base.

The ultimate advantage in asset management, used by Warren Buffett and Bill Ackman, is 'permanent capital.' This structure, often a public company, prevents investors from withdrawing funds during market downturns. It eliminates the existential risk of forced selling that plagues traditional hedge funds.

As a Limited Partner (LP) in the same PE funds they lend alongside, Neuberger accesses direct, unvarnished reporting on a portfolio company's performance. This provides a more honest view of a business compared to the polished materials prepared by a sell-side investment bank during a sale process.

The primary concern for private markets isn't an imminent wave of defaults. Instead, it's the potential for a liquidity mismatch where capital calls force institutional investors to sell their more liquid public assets, creating a negative feedback loop and weakness in public credit markets.