Stress Test for Semi-Liquid Credit Vehicles — Follow on to OpEd — Director’s Cut
- Mark M. Goldberg
- Nov 10
- 7 min read
November 10, 2025 Originally published in InvestmentNews (November 2025) A Storm is Brewing or see below
Excerpt:
“Markets love familiar villains. In private credit, the usual suspects are non-accruals, covenant breaks, and credit losses. That’s the narrative financial reporters pounce on: it rhymes with the latest high-profile default and is fueled by Jamie Dimon’s “cockroach” quips. Managers respond with facts to calm nerves, and we wait for the next default and the same coverage.”
“The question for private-credit managers is whether they’re ready for a different challenge. The next wobble won’t start with borrowers missing payments. It will start with who funds the market now — and how that capital behaves when headlines turn.”
This page features both the original Op-Ed as published in InvestmentNews and the extended “Director’s Cut” analysis available exclusively on AltsMI. Together they examine how behavioral narratives, liquidity design, and capital-flow dynamics intersect in semi-liquid credit funds. The directors’ cut is a stress test for advisors to determine when a private credit may cross into negative net flows and the implications.
EXECUTIVE SUMMARY: “Watch inflows vs. outflows. The spread between them precedes tighter redemption windows and balance-sheet pressure.” Excerpt from OpEd
I received inquiries regarding my recommendation quoted above from my OpEd of November 6th, on how to monitor flows. While there are different approaches, I developed a methodology to give advisors a simple gauge. I ran a stress test that reverts each fund’s inflows to 2023 and applied three hypothetical redemption requests of 10%, 15%, and 20% of current NAV. This “stress test” can help anticipate when the fund you may have for your client is nearing a position where net outflows would occur.
The question isn’t whether redemptions get paid because there is substantial liquidity in private credit vehicles.
But whether the spread between recurring inflows and potential requests tightens enough to require distributable cash, the addition of portfolio leverage (not generally advised), or balance-sheet shrinkage. For context, current 2025 annualized redemption rates are approximately 11.9% for Interval Funds and 4.7% for BDCs. For now, most BDCs are not near the first hurdle of our stress test. However, Interval Funds are currently in aggregate above the first hurdle, and I suspect a substantial number of private credit Interval Funds in the coming quarters will cross the 15% mark in redemptions.
Methodology
Sourcing vs. Analysis Core data (current NAVs, redemption rates, and 2023 capital flows) are sourced from R.A. Stanger & Co., compiled from public filings and manager-issued/reported inputs. The stress‑test framework, scenario design, computations, and interpretation were developed independently by Alternative Investments Market Intelligence (AltsMI).
Approach
We apply hypothetical redemption requests at 10%, 15%, and 20% of each fund’s current NAV and compare them to that fund’s 2023 inflows. The aim is not to forecast redemptions, but to indicate relative pressure on net flows (i.e., when a fund may need to rely on distributable cash or shrink the balance sheet to accommodate requests).
Universe & Exclusions
The universe includes non‑traded BDCs and Interval Funds that file public reports and have been actively raising capital for at least three years. The stress test does not account for reinvested dividends. On average, approximately one‑third of loans in this cohort turn over each year, which provides organic liquidity even when requests are elevated. Scenario illustrations are not forecasts; redemption caps, calendars, and liquidity mechanisms vary by vehicle and may limit or phase requests.
Definitions & Rounding
Net inflows = 2023 inflows; Redemptions are calculated as a percentage of current NAV. Scenarios = 10%, 15%, 20%.
Rounding: counts are exact; percentages shown to 1 decimal place.
Non-Traded BDCs
Universe: 13 BDCs tested.
BDCs maintaining net positive inflows by redemption scenario.
Interval Funds
Universe: 48 interval funds.
Interval-fund outcomes by redemption scenario
What to do now. At today’s run-rates (≈11.9% for Interval Funds; 4.7% for BDCs), most BDCs are significantly below the 10% hurdle, while a meaningful share of Interval Funds already sits above it. Advisors should track net subscriptions and pre-plan liquidity needs. If the redemption rate of your allocation is going to a fund above 15% be mindful of the implications. Treat this as a readiness check and not a forecast.
Appendix
**Methodology Described Above
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A Storm Is Brewing in Private Credit—and It’s Not What You Think
As published in Investment News – Nov 06, 2025
Despite headlines around borrowers missing payments and fraud behind the scenes, fund managers and advisors should be more wary of the system being rewired around a new base of investors.
Markets love familiar villains. In private credit, the usual suspects are non-accruals, covenant breaks, and credit losses. That’s the narrative financial reporters pounce on: it rhymes with the latest loan fraud or high-profile default and is fueled by Jamie Dimon’s “cockroach” quips.
Managers respond with facts and context to calm nerves, and we wait for the next news item and the same coverage.
I think the event most likely to trigger real investor stress is being missed.
The question for private credit managers is whether we’re ready for a different challenge. The next wobble won’t start with borrowers missing payments. It will begin with who funds the market now and how that capital behaves when news headlines turn.
Over the past decade, private credit was financed by insurance balance sheets, pensions, and sovereigns, long-term investors that model liquidity, accept mark-to-market noise, and don’t react prematurely to narratives. Historically, they invested in closed-end funds and separate accounts, where capital is locked, pacing is predetermined, and exits are managed and optimized by the Investment Manager.
Today, much of the capital flow for private credit comes in the form of open-ended private-wealth vehicles (interval funds, tender-offer funds, private BDCs), and the investor base and their advisors control liquidity. That feature isn’t a flaw; it’s an intended benefit, but it also involves costs and operational challenges that become more pronounced when the narrative shifts.
Let’s set aside the non-initiating indicators. Defaults are up at the margin but sit near long-run averages. Spreads are tighter, which is useful for pricing risk, but it’s not a fuse. Leverage is an amplifier, not a trigger; the multiplier effect matters more if windows narrow, but leverage isn’t the trigger by itself, and the market is carrying less than a 1:1 ratio of debt to equity in these funds today.
The real risk is the collision of structural liquidity with behavioral finance. When sentiment turns, advisors rationally become more cautious. They slow down recommendations and allocations to avoid client objections. Over time, not only do new commitments slow, but a growing share of clients redeem. Allocations to Private Credit are reduced. Nothing dramatic, just prudent trimming. That’s enough to thin the bid.
From there, the plumbing takes over. Fund vehicles built to offer periodic exits must pre-fund them. Managers raise cash and equivalents, trim deployment, and keep financing lines warm to honor repurchase policies. Inevitably, net investment income falls, and distributions follow. Lower yields (which can also be exacerbated by market conditions such as declining base rates) make the funds less attractive to both new and existing investors, tipping the balance toward slower commitments and even higher redemptions.
When redemption requests exceed available capacity, mechanics do the rest. An interval fund with ~5% of NAV tender capacity facing 7–8% requests results in oversubscription: pro rata fills, queues, and frustration. Private BDC repurchases are typically board-discretionary and can be reduced or suspended, with similar frustration and slower new commitments. Balance sheets shrink when outflows beat inflows. The release valve is funding liquidity demands by drawing on maturing loans (1/3 of loans typically mature each year) or by secondary sales at a discount. Either way the private credit marks will be impacted. The reduction in capital towards credit or the time-constrained trades reset comps, drag NAVs, and feed the next headline. The loop is familiar: narrative → advisor caution → slower flows → higher redemptions → lower portfolio marks → caps/limited windows → negative coverage → deeper advisor caution.
As Robert Shiller reminds us, contagious narratives don’t just describe markets, they make them. Fund Managers must actively contest today’s headlines with data, cadence updates, and plain-English liquidity guidance before the story hardens into self-fulfilling outflows. If your vehicle offers periodic liquidity, your risk isn’t the loan book; it’s the line at the door.
This isn’t new in private wealth, but it is new terrain for many private-credit managers. We saw a version of it with NAV REITs: macro shocks mattered, but the underappreciated driver was the wrappers’ plumbing combined with private wealth behavior. But these are bigger numbers. The Net Asset Value of non-traded BDCs and Interval Funds, as tracked by R.A. Stanger, stands at $259 billion in net equity, with approximately half a trillion dollars in loans. This isn’t a pension fund’s locked-up commitment; it’s individual investors with access to liquidity. When they ask for it, you’d better be ready.
All the well-managed private credit funds from major fund sponsors have the capacity to meet liquidity calls, but the risk is that those calls will get out of hand if the narrative continues.
Call to Action (Managers)
Brief advisors early and often; double your communication cadence. Are spreads tight because credits are strong? Defaults, recovery rates, and credit losses are part of every credit portfolio, and how you are performing. Are net flows positive or not, and what are the implications?
Keep financing lines warm but avoid over-reliance by balancing the certainty of cash with future flexibility.
Prepare for offense: opportunistic/rescue credit, secondary purchases at thoughtful discounts. Wider spreads with no change in credit quality is the time to have cash ready to deploy.
Note to Clients & Advisors
Watch inflows vs. outflows. The spread between them precedes tighter redemption windows and balance-sheet pressure.
Re-underwrite PIK trends, amendment frequency, and non-accruals (is PIK structural at origination or a reactive liquidity tool?). Is the portfolio sound?
Be wary if the Fund increases leverage to meet liquidity. This is a “tell” and should be of concern to you.
Decide whether you can hold through a structural liquidity cycle that isn’t necessarily a fundamental asset-class problem.
Every crisis mints a new vintage: secondaries at discounts with known performance are an opportunity. Opportunistic credit may emerge as the next allocation opportunity. Be ready to add.
For market observers, the questions remain: Are institutional managers who entered private wealth with semi-liquid wrappers ready to weather an unfamiliar storm? Will slowing capital availability impact loan marks? Are advisors looking in the right places for emerging stress?
We may be about to find out.