The Private Credit Mirage: Why 'Semi-Liquid' Was Always a Myth
There’s a saying in finance: liquidity is like oxygen—you only notice it when it’s gone. The private credit industry, once hailed as the golden child of alternative investments, is now gasping for air. And the reason? A term that’s been thrown around far too casually: semi-liquid.
Personally, I think the term itself is a masterclass in marketing spin. It’s like calling a mirage a refreshing oasis. Sure, it sounds appealing, but when investors actually try to drink, they find nothing but sand. The recent backlash against private credit isn’t just about market volatility or AI-induced panic—it’s about a fundamental misunderstanding of what these products truly are.
The Illusion of Liquidity
One thing that immediately stands out is how the industry has been selling private credit to retail investors. The term semi-liquid implies a middle ground—a happy compromise between the accessibility of public markets and the higher returns of private investments. But here’s the kicker: private credit is illiquid. Period.
What many people don’t realize is that the semi-liquid label was never about reality; it was about perception. It was a way to lure retail investors into a space they weren’t equipped to navigate. As EQT AB’s Per Franzen bluntly put it, these products are not liquid. And yet, the industry has been peddling them as if they were.
From my perspective, this isn’t just a marketing misstep—it’s a structural flaw. Retail investors, unlike institutional players, don’t have the luxury of locking up their capital for years. When the market trembles, as it did with the collapses of Tricolor Holdings and First Brands Group, they panic. And when they panic, they run. But private credit doesn’t allow for a quick exit.
The Retail Investor Dilemma
What makes this particularly fascinating is the tension between the industry’s desire for retail money and its inability to handle the retail mindset. PJT Partners’ Paul Taubman hit the nail on the head when he said retail investors need to be treated with kid gloves. But here’s the problem: the private credit industry has been using a sledgehammer.
If you take a step back and think about it, the push to include private credit in retirement plans—thanks to the US Department of Labor’s new rules—feels like a Hail Mary pass. The industry is desperate to tap into the $14 trillion retirement market, but it’s doing so without addressing the core issue: retail investors aren’t institutional investors. They don’t have the same risk tolerance, time horizon, or understanding of illiquidity.
A detail that I find especially interesting is the growing divide between institutional and retail investors. Institutional players are increasingly wary of having retail money in the same pool. Ted Koenig of Monroe Capital warned that scaling up to accommodate retail demand could compromise underwriting standards. In other words, the more retail money floods in, the greater the risk of another Tricolor-style collapse.
The Future of Private Credit
This raises a deeper question: Is private credit even suitable for retail investors? Raoul Hughes of Bridgepoint Group doesn’t think the industry has found the right product yet. And he might be right. Private credit was never designed for the average investor—it was built for pension funds, endowments, and ultra-wealthy individuals who could afford to wait.
But not everyone is ready to write off retail investors. Frederick Pollock of GCM Grosvenor believes they’re here to stay. Personally, I think he’s half-right. Retail investors will stay, but only if the industry stops treating them like institutional players. What this really suggests is that private credit needs a retail-specific product—one that’s truly liquid, or at least transparent about its limitations.
The Broader Implications
If you zoom out, the private credit saga is a microcosm of a larger trend: the financialization of everything. Alternative assets, once the domain of the elite, are being democratized—but at what cost? The push to make private credit accessible to retail investors is noble in theory, but in practice, it’s a recipe for disaster.
What many people misunderstand is that democratization doesn’t automatically mean empowerment. Without proper education, regulation, and product design, it can lead to exploitation. The private credit industry has been riding high on the promise of higher returns, but it’s forgotten the most important rule of finance: liquidity matters.
Final Thoughts
In my opinion, the private credit industry is at a crossroads. It can either double down on the semi-liquid myth and risk further backlash, or it can reinvent itself. The latter would require humility, innovation, and a willingness to prioritize retail investors’ needs over institutional convenience.
One thing is clear: the term semi-liquid needs to go. It’s not just misleading—it’s dangerous. As Alan Schwartz of Guggenheim Partners warned, there are tremors in the market. And if the industry doesn’t address the liquidity illusion soon, those tremors could become a full-blown earthquake.
So, the next time someone tries to sell you on the idea of semi-liquid private credit, remember this: liquidity isn’t a compromise—it’s a necessity. And in the world of private credit, it’s a luxury that simply doesn’t exist.
