Private Credit Investing ExplainedWhat the 2025 Redemption Wave Means for You

Private credit has quietly become one of the biggest stories in modern finance. Over the past decade, institutional heavyweights such as Blackstone, Apollo, Ares and Blue Owl built a $1.5–2 trillion market lending directly to businesses — bypassing banks entirely.

Now, for the first time, that market is facing a real test. Retail investors have requested billions in withdrawals from private credit funds. Some managers have had to limit redemptions. Share prices of major alternative asset managers have dropped more than 25% in 2025.

The question is: does this mean private credit is broken? Or is it simply maturing?

The answer matters enormously — especially if you are exploring private markets for the first time, or reassessing how much of your portfolio belongs in alternatives.

This guide breaks it all down clearly.

Private credit refers to loans made by non-bank lenders — typically large asset managers — directly to companies. Unlike public bonds, these loans are not traded on exchanges. They are negotiated privately, held until maturity, and generate income through interest payments.

The key characteristics of private credit are:

- Floating-rate income — most private loans pay interest linked to a benchmark rate, which rises when central bank rates go up - Illiquidity — these loans cannot be sold quickly or easily; investors typically commit capital for three to seven years - Higher yields — in exchange for illiquidity, private credit historically offers a return premium over public bonds - Senior secured status — many private credit loans sit at the top of a company's capital structure, meaning lenders are first in line to be repaid

For institutional investors like pension funds and sovereign wealth funds, private credit became a core allocation over the past decade — offering stable, yield-generating exposure with relatively low volatility.

To understand where we are today, it helps to understand the forces that created private credit's decade-long boom.

After the 2008 financial crisis, banks pulled back from corporate lending. Regulations tightened, risk appetites shrank, and a gap opened in the market. Asset managers filled it.

At the same time, interest rates stayed near zero for years. Investors hungry for yield had few options in public markets. Private credit, with its higher returns, became attractive.

When rates rose sharply from 2022 onwards, private credit became even more appealing — because floating-rate loans meant interest income automatically increased with benchmark rates.

The result: explosive growth. Private credit expanded from a niche institutional product into a mainstream asset class worth trillions, with the largest managers running flagship funds generating over $1 billion in annual fees.

In early 2025, investors began pulling capital from retail-focused private credit funds at an unusual scale. Reports indicate more than $10 billion in withdrawal requests in just the first quarter of the year. Managers have only been able to satisfy around 70% of those requests, with the remainder delayed due to built-in liquidity limits.

Goldman Sachs has estimated that retail private credit funds could see assets fall by $45–$70 billion over the next two years if current trends continue.

This has rattled public markets. Shares of major alternative asset managers — Blackstone, KKR, Apollo, Ares — have fallen more than 25% this year, erasing over $100 billion in combined market value.

That is a significant reaction. But the important question is: what exactly is it a reaction to?

The short answer: not yet, and probably not.

The current pressure on private credit funds is primarily a liquidity mismatch problem, not a loan quality problem. Private credit portfolios continue to generate interest income, and default rates remain relatively contained.

Here is the fundamental tension at the heart of this story:

Private credit funds invest in assets that take years to mature. But many retail-oriented funds offer quarterly redemption windows — allowing investors to exit a small percentage of assets every three months.

When too many investors try to redeem at once, funds hit their withdrawal limits. This is not a sign of insolvency or poor loan performance. It is simply how illiquid investments work by design.

The loans are not in trouble. The structure is simply meeting its first real stress test.

The current wave of redemptions has exposed something important: retail investors and institutional investors behave very differently in moments of uncertainty.

Pension funds and sovereign wealth funds allocate with 10-, 20-, even 30-year horizons. They do not watch headlines daily. They do not react to short-term sentiment.

Retail investors — even wealthy ones — often do. When markets feel uncertain, individuals tend to reduce risk, reallocate capital, or simply seek liquidity for other purposes.

This is not a flaw. It is simply human. But it creates complications when the asset being invested in is designed around long holding periods.

As private markets have opened to retail investors over the past five years, this behavioural difference was always going to surface eventually. The 2025 redemption wave is that moment.

If you are exploring private credit or other alternative investments, the current environment offers some clear lessons.

### 1. Illiquidity is a feature, not a bug — but only if you plan for it

Private credit offers higher returns partly *because* it is illiquid. That premium is your compensation for tying up capital. If you need flexibility to access your money within a year or two, private credit is not the right vehicle.

Before committing to any private credit fund, ask yourself honestly: can I leave this capital untouched for three to seven years without financial strain?

### 2. Not all private credit funds are structured the same

This point cannot be overstated. When evaluating private credit opportunities, look closely at:

- Redemption frequency and limits — how often can you request withdrawals, and what percentage of assets can leave each period? - Lock-up periods — is there a minimum holding period before any redemptions are allowed? - Portfolio composition — what types of borrowers are in the fund, and how are they distributed by sector and credit quality? - Manager track record — how has the manager performed through previous downturns?

The difference between a well-structured fund and a poorly structured one can be significant — particularly in stress scenarios.

### 3. Private credit is one tool, not a complete portfolio

Private credit can be a powerful source of yield and diversification. But it works best alongside other alternative exposures — each with different liquidity profiles and return drivers.

A well-rounded alternatives allocation might include:

- Private equity — long-term growth exposure to private companies - Infrastructure — stable, inflation-linked income from essential assets - Real assets — physical assets including real estate and commodities - Secondaries — purchasing existing stakes in private funds, often at a discount - Venture capital — earlier-stage, higher-risk, higher-upside opportunities

Diversifying across these categories reduces concentration risk and smooths the overall liquidity profile of your alternatives portfolio.

### 4. Current market conditions may create opportunity

When sentiment sells off indiscriminately — and evidence suggests some of the current selling is just that — the gap between price and fundamental value can widen. For long-term investors who understand the asset class, downturns in alternative asset manager share prices, or discounts on secondaries, can represent entry points.

This does not mean rushing in. It means staying informed and being ready to act with conviction when the data supports it.

The redemption wave of 2025 is not the end of private credit. It is the growing pain of an industry transitioning from an institutional product to a mass-market one.

The structural case for private credit has not changed. Banks are not returning to corporate lending at scale. Institutional demand for yield and diversification is not going away. The illiquidity premium is real.

What is changing is the industry's understanding of how to serve a broader, more behaviourally varied investor base. Managers will adapt — with better fund structures, clearer investor education, and more transparent liquidity mechanics.

For investors who understand the rules of the game, private markets remain one of the most compelling areas of modern finance.

At otherfinance, we believe that private and alternative investments should be accessible, understandable, and well-explained — for both experienced allocators and those just starting to explore beyond public markets.

Our learning hub covers everything from private credit basics to fund structure analysis. Our directory helps you discover and compare vetted alternative investment opportunities in one place.

If you want to stay informed as private markets continue to evolve — and be among the first to access our investment platform when it launches — [join the otherfinance waitlist today](/#waitlist).

What is private credit in simple terms?

Private credit is lending done by investment firms rather than banks. Companies borrow directly from asset managers, who then pass the interest income to investors in their funds. It is called "private" because these loans are not publicly traded.

Is private credit safe?

Like all investments, private credit carries risk — including the risk of borrowers defaulting and the risk of being unable to access your money quickly. However, many private credit loans are senior secured, meaning lenders are first in line to be repaid. Compared to equities, returns tend to be more stable, though not guaranteed.

Why are private credit funds limiting withdrawals?

Most private credit funds invest in loans that last several years. They cannot sell these loans overnight. If too many investors request withdrawals simultaneously, funds reach their built-in redemption limits. This is normal fund mechanics — not a sign that the underlying loans are in trouble.

Who can invest in private credit?

Historically, private credit was restricted to institutional investors and very wealthy individuals. Increasingly, however, retail-focused vehicles have made it accessible to a broader audience. Eligibility criteria vary by fund and jurisdiction.

How does private credit compare to bonds?

Private credit typically offers higher yields than public bonds, in exchange for lower liquidity. Public bonds can be sold on an exchange at any time; private credit loans cannot. Private credit also tends to be floating-rate, meaning income rises when interest rates go up — unlike fixed-rate bonds, which lose value in a rising rate environment.