Investors scramble for cash in $3 trillion industry as gates rise and defaults loom; Saba Capital and others offer urgent “off-ramps”
MARKET INSIDER – A wave of redemption requests is sweeping through the $3 trillion private credit industry, forcing asset managers to impose withdrawal limits on semi-liquid funds that had aggressively courted retail investors. As concerns mount over rising defaults—particularly in software loans vulnerable to AI disruption—investors are discovering the hard truth: many of these higher-yielding vehicles are far less liquid than advertised, prompting a scramble for exits amid the broader market jitters triggered by the Iran war and spiking oil prices.
Enter the private secondaries market, described by Raymond James global head of private capital advisory Sunaina Sinha Haldea as “robust and growing, and highly innovative.” This secondary trading ecosystem is rapidly becoming the pressure valve investors need, allowing them to sell fund stakes to other buyers without forcing managers to liquidate underlying loans at fire-sale prices. Haldea highlighted activist hedge fund Saba Capital, led by Boaz Weinstein, which—together with Cox Capital Partners—is launching tender offers for stakes in multiple private debt vehicles, including those managed by Blue Owl Capital.
“We’ve seen Boaz Weinstein at Saba Capital become very public about the fact that he’s offering tender solutions to BDC investors in these private credit funds to give them liquidity off-ramps,” Haldea told CNBC. She warned that retail investors in particular “didn’t potentially understand… this was illiquid paper. You can’t force a sale of the paper just because you want a redemption.”
Recent examples underscore the stress: Cliffwater curbed redemptions in its flagship Corporate Lending Fund after requests hit 14%, agreeing to buy back about 7% of shares itself. Morgan Stanley limited withdrawals from its $7.6 billion Northaven Private Income Fund as requests reached 11% in Q1. Blue Owl Capital Corp. II (OBDC II), a retail-focused business development company, recently overhauled its liquidity terms and sold assets to pension funds in a secondary-style transaction. Saba Capital is reportedly watching Cliffwater most closely.
While some view these gates as “a feature, not a bug,” Oppenheimer senior analyst Chris Kotowski argues the illiquidity premium is intentional, designed to deliver long-term total returns by avoiding forced sales during stress. “The liquidity limitations are meant to create total return over time,” he said, noting that private credit managers have historically emerged stronger from credit cycles because of their patient capital structures.
Yet the test is intensifying. Industry veterans fear defaults could double or even reach 8% in coming years—well above the historic ~2% average—as lighter covenants and weaker loans cycle through the system. Partners Group chair Steffen Meister and Morgan Stanley analysts have both flagged this risk. Haldea cautions the secondaries market, while helpful today, may not absorb a full-scale contagion: “Is that market big enough to support if the floodgates completely open…? No, it’s not. But is it enough today? We’re seeing that it is.”
For institutional and retail allocators alike, the message is clear: in an era of geopolitical shocks, tighter liquidity, and potential credit deterioration, the private credit boom’s retail expansion is facing its first major stress test. The secondaries “off-ramp” provides temporary relief, but the deeper question remains—will this innovative market mature fast enough to prevent a broader liquidity crunch, or will forced realizations expose the true risks hidden in these illiquid assets? Investors ignoring the distinction between promised yield and actual liquidity do so at their peril.
