Redemption restrictions across several private credit vehicles in the US have pushed liquidity risk back into focus for private markets, particularly as evergreen structures bring a broader investor base into the asset class.
Recent headlines have centered on certain private credit funds in the US limiting withdrawals and some pausing redemptions in certain vehicles. The developments come as policymakers, including the International Monetary Fund, warn that rapid growth in private markets could expose liquidity mismatches.
For Sanket Sinha, Managing Director and CEO of Global Asset Management at Lighthouse Canton, the developments are closely tied to the scale of capital that has flowed into Western private credit markets.
“The US market has become extremely crowded,” Sinha said, noting that large amounts of capital have entered both public and private assets over the past four to five years.
The crowding is particularly relevant in credit markets, where risk-return dynamics leave little room for underwriting mistakes.
Another area drawing attention is lenders’ exposure to high-growth software companies in the US, many of which expanded rapidly during the low-interest-rate years and were financed through private credit structures built around aggressive growth assumptions. A number of these businesses secured loans with payment-in-kind (PIK) features or financing tied to elevated valuation multiples, potential IPOs, or strategic monetisation events.
“The risk emerges when such companies remain loss-making and repayment expectations depend on future valuations rather than current cash flows. With the rapid advance of artificial intelligence beginning to disrupt parts of the software landscape, some of those valuation assumptions are now being reassessed by investors and lenders alike,” Sinha explained.
The recalibration has prompted closer scrutiny of loans backed primarily by equity valuations or future exits rather than tangible assets or stable operating cash flows, adding another dimension to the debate around risk in parts of the US private credit market.
“In credit investing, the upside is capped by the contractual return,” Sinha added. “But in the event of a default, the downside can be significant depending on the level of security and expected recovery.”
That asymmetry makes portfolio construction highly sensitive to capital flows. When liquidity is abundant and deployment pressure rises, managers risk allocating capital to weaker borrowers.
“You inevitably end up picking more losers than you can afford in a portfolio when too much capital is chasing the same opportunities,” Sinha added. “At that point, deployment pressure begins to take priority over portfolio quality.”
The current headlines reflect some of these pressures playing out in practice, but they are not solely about credit quality. They also highlight structural questions around how investors access private assets.
PRODUCT STRUCTURES SHAPE LIQUIDITY OUTCOMES
Much of the recent redemption activity has occurred in evergreen funds, open-ended structures designed to give investors periodic liquidity while investing in long-duration assets such as private loans, infrastructure, or commercial real estate.
These vehicles were created to broaden access to private markets, particularly for investors who may not want to lock capital for a traditional 10-year closed-end fund.
But the underlying assets remain fundamentally illiquid.
“In reality, private credit, infrastructure, and private equity are asset classes that are best suited to closed-end structures,” Sinha explained.
To manage that constraint, evergreen funds typically include redemption limits written into their prospectuses. If withdrawal requests exceed those limits, managers are able to impose temporary gates.
“Managers clearly disclose that redemptions may be limited, for example, no more than a certain percentage in a quarter,” Sinha said.
For Sinha, the bigger issue is not product design but investor expectations. Evergreen vehicles offer access to illiquid assets through a more flexible structure, but they still require investors to understand the underlying liquidity constraints.
“Any sophisticated investor entering an evergreen private market fund should recognise that redemption gates may apply during periods of stress,” Sinha said. “These mechanisms exist because the underlying assets themselves are not liquid.”
The liquidity premium offered by private markets exists precisely because investors accept this constraint.
“Investors earn a premium because they are allocating to assets that are inherently illiquid,” Sinha noted. That makes investor communication particularly important as private markets expand beyond traditional institutional allocators.
In Sinha’s view, the recent headlines reflect investor reaction rather than a structural failure of the model.
“When an event occurs or negative news emerges, more investors naturally try to redeem,” he said. “At that point the gates that were always part of the contract are triggered.”
Yet the way such mechanisms are reported in the media can sometimes amplify market anxiety.
“When gates are implemented, the narrative often becomes that the manager cannot meet redemptions,” Sinha said. “But in reality those provisions were always part of the structure.”
Market sentiment can then compound the issue.
“One headline can quickly create panic,” he said. “Investors may begin to assume there is something fundamentally wrong with private credit as an asset class.”
ASIA CREDIT STRUCTURES AND LIGHTHOUSE CANTON’S APPROACH
While the liquidity debate has largely centered on Western markets, Sinha believes it also highlights structural differences between the US and Asia’s credit landscape.
Asia remains a less crowded private credit market and continues to offer stronger spreads.
“Spreads are roughly 200 to 300 basis points higher in Asia,” Sinha shared.
But the opportunity extends beyond yield. In the US and Europe, the surge in capital has pushed many lenders further down the credit spectrum.
“In the US and Europe there is so much capital that GPs have moved down the credit curve,” Sinha said. “Structures are looser and governance standards lighter.”
Asia’s lending environment still looks different.
“You are still lending to top borrowers, often with lower levels of leverage,” Sinha said.
Credit structures also tend to remain more conservative, particularly compared with some Western markets where covenant-light lending has expanded.
“A lot of the challenges today also relate to loans extended to sectors such as software where there are limited hard assets backing the debt,” Sinha said. “Some of these structures are also covenant-light.”
By comparison, lending frameworks in Asia remain more protective for lenders.
“In Asia the structures are still significantly stronger,” Sinha said. “That places the region in a relatively favourable position.”
Research supports this and suggests the market is still early in its development.
According to an OECD study, Asia remains a small share of the global private credit market despite steady growth, with China, Korea, Japan, and India accounting for roughly 91% of the region’s private credit investment between 2010 and 2024.
For Lighthouse Canton, those structural characteristics shape its investment approach.
The company focuses on borrower-level underwriting across Asian corporates rather than competing in increasingly crowded Western lending markets. That approach prioritises balance-sheet strength, governance quality, and sustainable leverage profiles.
Ultimately, Sinha believes investors evaluating private credit should focus less on geography and more on the underlying borrowers.
“LPs need to look beyond country or geography risk,” he said. “The real assessment has to be done at the borrower level,” he concluded.
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