Private credit liquidity is shaped by duration mismatch, a fundamental tension where assets and liabilities operate on different timelines. In private credit, duration mismatch appears when investors expect timely access to capital, while the underlying assets are designed to be held for years.
When short-term liquidity expectations meet long-duration, illiquid assets, friction occurs. A secondary market can bridge the gap when investors need liquidity but the underlying assets don’t offer it naturally.
To understand why this mismatch exists, it’s helpful to look at how the private credit market operates and its evolution.
As bespoke loans between private lenders and private companies, private credit is structurally illiquid. Terms vary widely, from maturity and size to collateral — and there’s no centralized exchange where they trade.
As part of its post-2008 financial crisis beginnings, private credit was the domain of large, institutional asset managers and limited partner capital that was comfortable in 10+ year long fund lifetimes. Private credit managers aligned the lifetime of the underlying assets with the lifetimes of the funds and the needs of the capital bases. But, as the asset class continues to evolve and new investors enter the market, the old method of portfolio construction is coming under stress.
In recent years, the biggest shift in private credit has been the entrance of retail and high-net-worth investors.
As the asset class has grown, managers have expanded beyond institutional capital. New fund structures have made private credit more accessible, often emphasizing yield and diversification. But retail investors, unlike endowments, often cannot, or do not want to, lock up capital for a decade. While newer private credit fund structures may offer periodic redemption windows, they do not eliminate the underlying liquidity constraints.
Private credit has delivered consistent risk-adjust returns and, in many cases, outperformed public fixed income precisely because of the illiquidity associated with the assets. According to data from Morgan Stanley, private credit has delivered roughly 8–11% annual returns, compared to about 4–6% for high-yield bonds, 4% for leveraged loans, and just 1–2% for traditional U.S. bonds. The illiquid nature of the assets is compensated by higher yields and bespoke structures, creating an “illiquidity premium.”
Private credit’s constrained liquidity optionality is compounded by the fund structures holding these assets. Interval funds, non-traded BDCs and evergreen funds offer only limited, periodic liquidity — and even that can be conditional on available cash, inflows, and portfolio turnover. For example, a fund may limit total redemptions to 5% of Net Asset Value (NAV) per quarter; if requests hit 10%, the fund must scale back every investor’s request by half. When redemption requests exceed those buffers, funds may implement gates or queues.
That is where duration mismatch comes in: The illiquidity of underlying private assets can clash with investor expectations, especially when those expectations are shaped by daily liquidity in public markets.
Recent headlines around elevated redemption requests at Blue Owl and other funds have brought this issue into focus. Importantly, these redemptions appear to be driven more by sentiment than by deteriorating credit quality. After several years of strong performance, some investors are simply reallocating or responding to shifting risk sentiment.
When investors need liquidity and the underlying assets aren't naturally liquid, a secondary market like Tradable bridges that gap. Rather than relying on fund-level redemptions, which can be gated or delayed, investors can transact directly with other market participants. In other words, instead of forcing liquidity out of the fund structure, investors can unlock it through market infrastructure.
If investors can sell or syndicate their positions with one another, liquidity no longer depends solely on fund-level mechanics. Tradable connects institutional buyers and sellers across the full spectrum of private credit. This introduces price discovery, competition, and flexibility — functions of a live market that private credit has historically lacked.
Addressing duration mismatch does not require changing the fundamental nature of private credit, but to align investment structures with the realities of the asset class. Private credit will remain illiquid at the asset level as this constraint is fundamental to its return profile. Investor access to liquidity, however, doesn’t have to be binary.
By layering in market-based solutions, the industry can reconcile long-duration assets with shorter-duration capital.
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