The Private Credit Boom is Over: Redemption Requests Exceed Liquidity | James Elbaor | Marlton LLC

James Elbaor describes private credit as no longer a growth story: he says no new money or capital is currently flowing into the strategy, while managers focus on redemptions and liquidity. He expects consolidation to start as soon as next fiscal year and sees more mergers and tender offers over the next five years. The central tension is that funds offered periodic liquidity while holding assets that may be difficult to sell quickly. Gates can limit withdrawals and help a fund keep operating, but they do not remove the underlying mismatch, which Elbaor compares to borrowing short and lending long.

Blackstone’s B-CRED, an $82 billion leveraged private-credit vehicle, received redemption requests for about 10% of its shares, or roughly $8 billion, against a 5% quarterly gate. Investors seeking to leave face a queue, but Elbaor cautions that the requests alone do not prove broader market distress: they could reflect buyer’s remorse or concern about impaired assets and unreliable valuations. B-CRED has marked down its private-credit book in each of the past four quarters. Blue Owl’s OBDC took a different course, ending quarterly liquidity and opting to wind down its portfolio and return cash as quickly as possible; distributions during the process could be above or below 5%, and the vehicle is not intended to remain a going concern.

Elbaor expects consolidation to bring both risks and potential opportunities for investors. Smaller BDC mergers have often exchanged shares at NAV for NAV, though he cited a recent transaction with a haircut; outcomes in related-party deals depend on sponsor-set terms and whether shareholders receive an exit. He also cited a Mt. Logan purchase at 110% of NAV and an unsolicited Source Capital offer at 101%, arguing that mergers need not happen at discounts. Uncertainty over reported NAVs has restrained deal activity. Public BDC discounts could reflect either liquidity costs of roughly 60–65 cents on the dollar or markdowns to private BDC NAV; Elbaor favors the liquidity-cost explanation and considers NAV broadly intact. For interval-fund investors who want to retain exposure, his firm is redeeming what it can and buying yield-producing public BDCs, emphasizing wider-discount funds that might be acquired by narrower-discount peers rather than relying on discounts to return to historical levels.

BPRE’s shareholders approved a direct listing to provide liquidity, but the market set the price: the fund began trading at a 38% discount to stated NAV. Accepting that discount can mean trading potential value for immediate liquidity rather than waiting, potentially for years, to redeem. BPRE could eventually return capital or find another merger partner, but Elbaor presented it as a situation to monitor, not a buy recommendation. More broadly, he cited more than half a trillion dollars of estimated private-credit exposure to SaaS companies and questioned how many borrowers threatened by AI disruption can adapt. He does not expect catastrophically high defaults, but expects defaults to exceed what current institutional discount pricing implies; rising rates and risk premiums also increase refinancing pressure.

Elbaor distinguishes permanent-capital vehicles from private-credit funds with redemption obligations. Permanent-capital investors can sell shares to other shareholders, but the capital stays in the vehicle; these structures are not compelled to sell assets or borrow to meet LP liquidity deadlines. Private-credit funds may have to sell or borrow to meet obligations, though gates can restrict withdrawals and vehicles can wind down or merge. He cautions that “permanent capital” is a non-GAAP term defined differently by each manager, and contrasts it with hedge funds, where LPs can exit and which he says have roughly three-year average holding periods, and private-equity funds, which typically require at least 10 years of lockup.

He argues that permanent capital can support recurring management fees and business growth, while performance fees warrant less value because they are volatile; leverage should be used judiciously. He says investors are paying more attention to fee margins and payout ratios, citing Pershing Square’s roughly 80% payout ratio and industry-leading margins. He sees asset managers shifting from service providers toward compounding permanent capital and predicts a major boom, although firms concentrated in private credit may have more difficulty adapting. He does not regard alternatives or their valuations as permanently impaired. For Pershing Square, he describes PSUS as a way to obtain exposure to Bill Ackman with daily share liquidity and the ability to borrow against shares, potentially at SOFR plus 1% or 2%, versus SOFR plus 7% to 10% for a private-fund NAV loan. He calls PSUS a succession plan, not a liquidity event for Ackman, and says Ryan Israel has taken a larger role in managing the portfolio while Ackman remains CEO and president.