Key points
Private credit was built on a simple bargain. Investors lent for years at a time, gave up the right to sell, and were paid a premium for their patience. Pension funds, insurers and family offices took that deal because they could afford to wait.
That bargain is now being offered to everyone. Exchange-traded funds, listed and non-traded business development companies (BDCs) and evergreen funds promise private credit returns with some form of liquidity. In the US, policymakers have moved to let 401(k) savers in. Private credit, by definition an illiquid asset class, is being repackaged for public consumption.
Is this the market maturing, or the start of an erosion of what made it work? The first half of 2026 offered an early answer, and it is worth understanding before choosing how to invest.
The democratisation of private credit
Until recently, access to private credit was limited to investors who could commit large sums to closed-end funds for five to eight years. Three developments changed that.
Semi-liquid funds and non-traded BDCs let wealth clients invest smaller amounts with quarterly redemptions, typically capped at about 5% of the fund. They became the main route for private clients and grew rapidly from 2021.
Private credit ETFs went further. The SPDR SSGA IG Public & Private Credit ETF (PRIV), launched by State Street with Apollo as sourcing partner in February 2025, offers daily dealing. Its documents say private credit will generally make up 10% to 35% of the fund, with the rest in public investment-grade debt, and Apollo has agreed to provide firm daily bids on the private holdings, according to ETF Central. The SEC raised questions about its liquidity arrangements shortly after launch, as InvestmentNews reported.
Retirement plans are next. An August 2025 executive order directed US regulators to revisit guidance on alternative assets in 401(k) plans, and on 30 March 2026 the Department of Labor proposed a process-based safe harbour for plan fiduciaries selecting them, covering assets including private credit, as Morrison Foerster explains.
For investors who were previously shut out, wider access is welcome. The question is what changes when an illiquid asset is placed inside a liquid wrapper.
The liquidity dilemma
Private credit has earned a premium because investors accepted that their capital would be tied up. That is the illiquidity premium. A vehicle that offers liquidity on top of illiquid loans has to find it somewhere: by holding cash and public bonds, by borrowing, by relying on a market maker, or by limiting withdrawals. Each option either reduces returns or shifts risk to the moment investors most want out.
The UK open-ended property funds that offered daily dealing on buildings showed how this ends, after the 2016 Brexit vote and again in March 2020. They worked until redemption requests exceeded available cash, then suspended dealing and locked investors in.
Private credit had its own test in 2026. In the first quarter, investors asked to redeem 7.9% of Blackstone's BCRED, 11.2% of Apollo Debt Solutions, 21.9% of Blue Owl Credit Income Corp. and 40.7% of Blue Owl Technology Income Corp., as Advisor.ca reported. Most funds paid out at or near their 5% caps and pro-rated the rest. Fitch expected elevated requests to continue through 2026, while judging that the funds it rates could meet 5% quarterly tenders for a year even without new money.
The caps worked as designed. They protected remaining investors from fire sales. But many investors discovered that the liquidity they thought they owned came with conditions.
Listed vehicles show the other side of the trade. They always offer an exit, at a price. In February 2026, all but six of 42 listed BDCs traded below their reported net asset value, some at discounts of more than 40%, according to LSEG data reported by Morningstar. Daily liquidity turns valuation uncertainty into price volatility.
| Vehicle | Liquidity offered | What sits underneath | How it behaves under stress |
|---|---|---|---|
| Private credit ETF | Daily | Mostly public bonds, with a minority of private loans | Relies on market makers and bids; price can diverge from value |
| Listed BDC | Daily, on exchange | Private loans | Trades at a discount to net asset value |
| Non-traded BDC or evergreen fund | Quarterly, capped near 5% | Private loans plus a liquidity buffer | Queues and pro-rated redemptions |
| Closed-end fund | None until wind-down | Private loans | No runs; capital locked for the fund's life |
| Hold-to-maturity notes | Held to maturity | Contractual loans | No redemption queue; investors receive scheduled cash flows |
Could liquid vehicles drain capital from smaller borrowers?
A less discussed risk concerns the businesses on the other side of the loan. Private credit has been a lifeline for SMEs and lower mid-market companies too small for bond markets and often overlooked by banks. We set out the scale of that gap in The Financing Gap.
Liquid vehicles favour borrowers that are large, well known and easy to value. An ETF needs holdings with dependable bids. A large evergreen fund needs to deploy billions a quarter. Both pull capital towards bigger, sponsor-backed and investment-grade borrowers, and away from small facilities that take as much work to underwrite as large ones.
If more capital flows into these structures, managers have less reason to lend to smaller businesses. The companies that benefited most from private credit's rise could find themselves edged out as capital moves towards borrowers that suit liquid wrappers. For investors willing to do the work, that also means the smaller end of the market stays less crowded and better priced, a theme we develop in Private Credit: Supplying the Demand.
A sign of maturity, or a warning?
Wider access is a sign of a maturing asset class. Institutions have allocated to private credit for years, and it was always likely that private investors would want a way in. Some of the new structures are well designed, with liquidity terms that match their assets and managers who have held their caps under pressure.
The concern is mismatch. When a vehicle promises more liquidity than its assets can provide, the gap is closed by diluting returns in good times and restricting exits in bad ones. Investors buying private credit through a daily or quarterly wrapper should understand that they are buying a blend of private credit, public credit and a liquidity promise, each with its own cost.
What this means for investors
Private credit has partly gone public. The core of the market, direct and asset-based lending to private borrowers, remains private, but the routes into it now run from daily-traded ETFs to ten-year funds.
The right route depends on what the investor needs. Those who may want their money back at short notice should accept a lower, diluted premium and read the redemption terms closely. Those who can hold to maturity keep the full spread and avoid the queue. At Kingsbury & Partners we follow an originate-and-hold approach, with senior secured facilities to specialty lenders held through bankruptcy-remote note structures, because it removes the mismatch between the assets and the investor's exit. For an overview of the whole market, see What Is Private Credit?
The lesson of 2026 is that liquidity is a feature with a price. Investors should know what they are paying for it.
Frequently Asked Questions
What is a private credit ETF?
An exchange-traded fund that holds some private credit alongside public bonds and trades daily on a stock exchange. The first, State Street's PRIV, holds mostly public investment-grade debt, with private credit generally 10% to 35% of the portfolio.
What is a BDC?
A business development company is a US vehicle that lends to private companies. Listed BDCs trade on an exchange; non-traded BDCs are sold through wealth channels and offer limited periodic redemptions.
Why did private credit funds limit redemptions in 2026?
Requests rose well above the usual 5% quarterly cap at several large funds in early 2026. Managers held to their caps to avoid selling loans at a discount, paying investors pro rata.
Can private credit be held in a 401(k)?
It is becoming possible. A 2025 US executive order and a March 2026 Department of Labor proposal aim to make it easier for 401(k) plans to offer alternatives, including private credit.
Is private credit liquid?
The underlying loans are not. Vehicles can offer liquidity through cash buffers, market makers or listings, but that liquidity can be limited or come at a discount when many investors want to sell at once.