At the beginning of the last century, canaries helped miners detect toxic gases that could put them in danger. This metaphor seems especially relevant today, according to those who see a warning sign in the wave of redemptions experienced by private debt funds globally. Some see risk in this industry, one of the alternative asset classes that has generated the most interest in recent years—while others view it as a temporary episode of anxiety against the backdrop of solid market fundamentals. Time will tell which side is right, but industry professionals are watching all available signals closely.
These emerging doubts around the asset class come after years of strong growth, which have left their mark on the industry’s size. Figures from the Alternative Investment Management Association (AIMA) show that the category ended last year with global AUM of more than 2.5 trillion dollars. Moreover, according to data compiled by S&P Global Ratings, 2025 saw industry fundraising reach 224.25 billion dollars worldwide.
Against this backdrop, the year so far has brought a series of major redemption announcements from large international funds such as Blackstone, Blue Owl, BlackRock, and Apollo. Does this mean the asset class is heading into a downturn? Industry participants downplay the situation, asserting that this is not a looming financial crisis, as some more alarmist voices have suggested. That said, this does not mean they see no areas of risk, especially given the dispersion and heterogeneity of the sector.
Illiquidity: nothing new under the sun
For Blue Owl, what is happening is simply a natural phenomenon tied to one of the core characteristics of alternative investments: illiquidity.
“These vehicles are designed to balance access to long-term assets with periodic liquidity windows. This trade-off—accepting limited liquidity in exchange for higher returns—is intentional and, when properly managed, allows strategies to function exactly as designed. Limited liquidity is not a flaw of the model; it is a structural feature of it,” says Felipe Manzo, Managing Director and Head of Private Wealth for Latin America at the firm, in comments to Funds Society.
In that sense, he says they do not see a systemic problem, but rather “specific situations.”
According to Manzo, the current situation stems from a gap between market sentiment and the fundamentals of the vehicles themselves. “Private credit continues to offer an attractive premium relative to public credit markets, with solid opportunities in high-quality borrowers,” he says, adding that more disciplined strategies tend to prevail in periods of volatility. “At Blue Owl, we believe we are particularly well positioned to navigate this environment, thanks to a rigorous credit analysis process and a diversified portfolio that has demonstrated resilience and solid returns across the business, not only in credit,” he notes.
At CIO Invest, a boutique specialized in alternatives, they call for a precise diagnosis of the phenomenon. This is not an industry-wide liquidity crisis, according to the firm’s team, but rather a specific tension in certain vehicles, where market sentiment is leading investors to request redemptions above established contractual limits. “That distinction is crucial,” they stress.
The role of semi-liquid vehicles
One factor that has accelerated redemption dynamics is the creation of semi-liquid funds—alternative structures designed to offer somewhat greater liquidity. Given this feature, it is not surprising that these products are seen as the spearhead that has opened the door to alternative strategies for a more retail-oriented investor base over the years.
However, despite offering more flexibility for withdrawals than traditional alternative funds, these episodes have served as a reminder that illiquid assets remain illiquid assets.
“Semi-liquid vehicles were designed with redemption limits precisely to manage this reality, but when sentiment deteriorates, investors seek to exit in volumes that far exceed those thresholds. That works as long as inflows exceed outflows, but when sentiment reverses, the system fractures,” explain sources at CIO Invest.
As such, this appears to be a localized issue, since traditional closed-ended vehicles, pure private credit platforms, and structures such as CLOs are not currently facing this dilemma.
At Blue Owl, they also highlight the role of wealth management channels in current dynamics. “The growth of private banking and wealth management channels has significantly expanded access to private markets. At the same time, this dynamic has raised the level of demand and responsibility for managers,” says Manzo.
Short-term flows
Regardless of the long-term impact, it appears that some damage has already been done. Considering that individual investors tend to be more sensitive to so-called “headline risk” than other segments—such as institutional investors—the expectation is that redemptions currently being deferred due to withdrawal limits will continue to drive outflows in the short term.
A report from Goldman Sachs Research indicates that the trend of declining sales and rising redemptions began in the last quarter of last year, driven by the prospect of lower future returns—given lower base rates, tighter spreads, and a credit event rate that has risen slightly from previously negligible levels—as well as increased media focus.
Looking ahead, the investment bank estimates that outflows will range between 45 billion and 70 billion dollars over the next two years. Even so, the firm does not expect this to trigger a wave of asset sales across the industry.
“Considering certain levels of liquidity buffers within funds (around 19% of the industry’s NAV and about 11% of total gross fund assets), the maturity profile of loans (typically between 5 and 7 years), managers’ ability to provide liquidity, the capacity to maintain quarterly redemption limits of 5%, and the ability to use leverage, we believe the need to liquidate private loans at an industry level will be limited,” Goldman Sachs noted.
Even so, from the perspective of asset managers, this phenomenon opens up a behavioral risk that was not previously on their radar. “The real risk is not that loans will default en masse, but that sustained redemptions will force asset sales at discounts, depressing NAVs and triggering further redemptions in a vicious cycle. That is the scenario that needs to be closely monitored,” conclude sources at CIO Invest.
