What is private debt?
Private debt (or private credit) refers to loans extended to companies, generally unlisted, by institutional investors or specialised funds. Over the past fifteen years, it has become a cornerstone of corporate financing and a major asset class for investors.
With this growth and the emergence of new so-called “semi-liquid” investment vehicles, one question arises repeatedly: how can inherently illiquid assets be reconciled with growing expectations of liquidity? The tensions observed above all serve as a reminder of a fundamental reality of private markets.
The misunderstanding around liquidity
A structural tension between illiquid assets and the promise of liquidity
With the democratisation of private debt, new investment formats have emerged, notably evergreen or semi-liquid vehicles allowing continuous subscriptions and offering periodic redemption options.
These structures create an expectation of liquidity among investors, while the underlying assets (the loans) are, by nature, illiquid and long term. One rule remains immutable in private markets: a fund structure never changes the nature of the asset it holds. An illiquid asset remains illiquid, even when housed in a vehicle featuring redemption windows.
Safeguards: “gates”
Private debt loans are structured over several years and do not trade like listed bonds. It is therefore entirely normal for the funds that hold them to offer limited liquidity.
Redemption limitation mechanisms (gates) are not anomalies, but essential safeguards designed to prevent a flow issue from becoming a valuation issue.
Why is this being discussed so much now?
A changing environment
For more than a decade of low interest rates, private debt developed in a highly supportive environment: abundant capital, attractive financing conditions and sustained growth among financed companies.
The abrupt shift in the monetary regime since 2022 marks a return to a more traditional credit reality: the quality of financed assets and investment discipline are once again becoming decisive.
A market entering a phase of maturity
This return to stricter credit discipline is not a warning signal, but rather a normal phase in the market’s maturation.
The promise made to investors: the real issue
Liquidity organised, not manufactured
Private debt does not have a liquidity problem in itself, but at times a problem of promised liquidity. Institutional investors know that, within private assets, the “long term” is part of the investment equation.
A salutary reminder
Three principles are once again becoming central:
- The quality of financed assets
- Discipline in fund structuring
- Transparency in the promise made to investors
In summary: a lesson for the ecosystem
Private debt is not going through a crisis. It is simply reminding us of a fundamental rule of private markets: liquidity is not decreed, it is structured.
- Better informing investors about the nature of the assets
- Adapting fund structures to the reality of the underlying assets
- Strengthening transparency and credit discipline
FAQ – Private debt, liquidity and structuring
What is private debt?
Private debt (or private credit) refers to loans extended to companies, generally unlisted, by institutional investors or specialised funds.
Why does the question of liquidity arise so often in private debt?
With the rise of new so-called “semi-liquid” investment vehicles, one question arises repeatedly: how can inherently illiquid assets be reconciled with growing expectations of liquidity?
Does an evergreen vehicle make private debt liquid?
One rule remains immutable in private markets: a fund structure never changes the nature of the asset it holds. An illiquid asset remains illiquid, even when housed in a vehicle featuring redemption windows.
Are gates a problem?
Redemption limitation mechanisms (gates) are not anomalies, but essential safeguards designed to prevent a flow issue from becoming a valuation issue.
Is private debt going through a crisis?
Private debt is not going through a crisis. It is simply reminding us of a fundamental rule of private markets: liquidity is not decreed, it is structured.
