When a US private credit fund closed its exit window to investors, confidence immediately came under pressure. The question is no longer just what went wrong, but whether the mechanisms underpinning these semi-liquid funds are functioning precisely as intended.
Blue Owl’s decision to shut the “redemption gate” in a semi-liquid vehicle has reopened a debate that is becoming increasingly relevant in Europe, where ELTIF funds are scaling rapidly and retail capital is entering private markets in greater numbers.
“Recent elevated redemption activity in certain semi-liquid vehicles should be viewed as a real-time test of the structure rather than a sign of structural weakness,” Jiří Król, deputy chief executive and global head of government affairs at Alternative Investment Management Association (AIMA), told Investment Officer. “Periods of market stress are precisely when liquidity management tools — such as notice periods, redemption caps and buffers — are designed to operate.”
“What we are testing here and right now is clearly the definition of semi-liquid,” said Olivier Dauman, global head of investor relations for private markets at CA Indosuez.
Semi-liquid funds sit between fully liquid mutual funds and traditional closed-end private equity vehicles. In the US, these funds, known as Business Development Companies (BDCs), offer periodic redemption windows while investing in private loans and other illiquid assets. In Europe, ELTIFs serve a similar function, providing investors structured access to private equity, private credit, and infrastructure, while giving them limited opportunities to exit, under conditional liquidity. In both cases, the promise is controlled access to illiquid returns rather than daily tradability.
The BDCs in the US, the private credit vehicles now under scrutiny, served as a model for Europe’s ELTIF regime. The idea was to open an additional channel of long-term capital for developing European businesses by giving investors structured access to illiquid assets. Today, 282 ELTIFs are authorized across Europe, including 112 new registrations in 2025. More than 70 percent of those new vehicles target retail investors, and Luxembourg hosts the majority, followed by France.
Critics argue that the funds are fundamentally flawed. “Semi-liquid funds offer quarterly liquidity while owning assets that do not trade quarterly. This is a classic asset-liability mismatch that has doomed many investors before,” Morningstar’s Brian Moriarty wrote in a recent analysis titled ‘Blue Owl Offers a Harsh Lesson’.
Private credit generates returns in part because capital is locked up. Once redemption features are introduced, balancing mechanisms become necessary. Redemption caps and notice periods are meant to prevent forced sales at distressed prices. As Król argued, they exist to protect long-term investors and preserve portfolio integrity.
The Blue Owl episode also coincides with a broader repricing in public loan markets, amid concern over the impact of AI on business models in the software sector. Henry Craik-White, portfolio manager at Schroders, sees the widening discounts in listed business development companies as a reminder of how quickly leverage and uncertainty interact.
“When you combine leverage, illiquidity and uncertainty, discounts emerge. The math becomes very clear very quickly,” he said. “If your loan falls 10 points from par and you are 100 percent levered, your NAV falls 20 percent.”
While syndicated loans adjust daily, private credit valuations move more gradually. When public markets reprice sharply, questions about private valuations intensify, even if underlying credit performance remains broadly intact. In that gap between pricing frequency and investor perception, confidence becomes decisive.
Not everyone views the US episode as a warning signal. “We view the Blue Owl sale transaction as a sign of strength in the private debt market and not, as The Wall Street Journal characterized it, as a warning sign,” wrote Stephen Nesbitt, chief executive of Cliffwater.
Nesbitt underlined that Blue Owl’s secondary sale following the closing of the redemption gates was close to net asset value, demonstrating market depth rather than distress. In that transaction, Blue Owl sold approximately 600 million dollars of assets from the fund at roughly 97 percent of net asset value, returning close to one-third of the vehicle’s capital to investors. Liquidity, in that reading, was available, albeit on market-consistent terms.
For Europe, the more relevant question is behavioral. As ELTIF numbers rise and distribution broadens, the challenge shifts from engineering the wrapper to ensuring investors understand what they are buying. Scope’s latest ELTIF survey identifies the primary risk not in regulation or macroeconomic stress, but in distribution barriers linked to product complexity and limited advice. The research shows that 80 percent of respondents consider financial education essential for long-term success.
Indosuez’s Dauman is explicit about suitability. “As long as education is in place and you’ve sold the fund to the right investor in the right way and with the right information, they will understand the risk return profile of this product,” he said.