In recent months, the private credit has begun to show signs that recently seemed unlikely. The Business Development Companies (BDCs) —vehicles that for years offered relatively liquid access to private credit strategies—are facing a new challenge: balancing attractive returns with the management of redemptions. 

This phenomenon is not an isolated one. As interest rates rose to high levels and public markets offered more competitive alternatives, some investors began to request liquidity from vehicles that, by design, invest in illiquid assets. The result has been increased pressure on the repurchase mechanisms and redemption limits that various BDCs establish to protect portfolio stability. 

Simply put, the market is highlighting a structural reality: private credit is not a liquid asset, even though some structures attempt to offer periodic exit windows. 

Recent data from the leading private real estate investment trusts (REITs) reveal some interesting trends. Over the past year, growth in assets under management (AUM) has begun to slow, while redemption levels have gradually increased across various funds. At the same time, monthly returns have remained relatively stable, reflecting the contractual nature of credit flows. 

This combination—increased liquidity pressure coupled with still-solid returns—has led many managers to tighten liquidity policies, adjust redemption limits, or prioritize portfolio stability over capital growth. 

Rather than a sign of weakness, this process can be interpreted as a maturation of the market. Investors are learning—sometimes for the first time—that access to consistent returns in private credit requires accepting a certain degree of illiquidity. 

In other words, the market is rediscovering the illiquidity premium. 

At the same time, the private credit market has also begun to show signs of normalization after several years of exceptionally high returns. Throughout 2023 and part of 2024, the high-rate environment allowed many BDCs to capture particularly attractive returns in corporate direct lending. However, as the cycle progresses, the market is beginning to adjust. 

Increased competition among lenders, coupled with the return of some banks to certain segments of corporate financing, has begun to put pressure on lending terms. This has resulted in lower origination volumes in some segments and a gradual narrowing of spreads, particularly in corporate direct lending, where most BDCs operate. 

This shift is creating an increasingly clear distinction within the private credit sector. While most BDCs compete in the corporate direct lending segment, there are other areas of private credit where competition remains significantly lower. 

In particular, financing backed by real assets—such as asset-backed lending and real estate financing—continues to offer attractive spreads and more defensive structures, with origination dynamics that remain favorable. 

For investors with a long-term horizon, this trend is not necessarily negative. In fact, it can strengthen the ecosystem. When speculative flows subside and the remaining capital is truly patient, managers can focus on what truly generates value: originating high-quality credit, structuring sound transactions, and capturing attractive spreads. 

In that sense, what is happening today with private BDCs is not a crisis, but a natural transition in a market that has grown rapidly over the past decade. 

And as is often the case in financial markets, periods of correction are often the very ones that end up solidifying long-term opportunities. 

DISCLAIMER.

Jaime Cruz 
Portfolio Manager, US Private Debt, Fynsa AGF