Key takeaways:
- Private credit growth has been benefiting from strong demand from institutional investors and private wealth channels, contributing to a growing mismatch between investor liquidity needs and the illiquidity of underlying assets.
- Due to higher interest rates, weaker IPOs and M&A activity, distributions to investors have declined, leaving many overallocated to private equity and/or venture capital, reducing their ability to recycle capital – leading to the need to seek more liquidity.
- Private credit markets should evolve to serve a broader investor base with greater emphasis on liquidity management, diversification, and transparency. We believe successful managers are those who are disciplined, focused on underlying structure and credit quality, and nimble in allocation.
Private credit has grown into a core component of institutional portfolios over the past decade, expanding rapidly as investors sought higher yields and diversification relative to traditional fixed income. The global market is now estimated at roughly US$2.3 trillion in assets under management, and projected to reach US$4.5 trillion by 20301, supported by strong demand from institutional investors and increasing participation from global private wealth channels. With this growth has come a notable shift in investor preferences and sentiment, with liquidity emerging as a central concern.
Closer alignment between asset liquidity and investor liquidity expectations is becoming essential
A key theme across private markets is the growing mismatch between investor liquidity expectations and the inherently illiquid nature of the underlying assets. Over the past two years, exit activity across private equity and venture capital has slowed materially due to higher interest rates, weaker initial public offering (IPO) markets, and reduced merger and acquisition (M&A) activity. As a result, distributions to limited partners have declined significantly2, leaving many investors overallocated to private markets relative to target levels and reducing their ability to recycle capital. In response, investors are increasingly seeking liquidity through secondary markets3 or redemption features in semi-liquid, “evergreen” vehicles.
These dynamics are beginning to surface within private credit structures, particularly business development companies (BDCs) and other perpetual fund vehicles that offer periodic liquidity to investors. While the underlying assets – primarily senior secured middle-market loans – continue to perform, in most cases, the liquidity profile of these portfolios is intended to be limited, creating pressure when redemption requests accelerate.
These pressures have been illustrated most visibly in the non-traded BDC space. In early 2026, one of the sector’s largest retail-focused credit vehicles effectively suspended traditional redemption mechanisms after elevated withdrawal requests, instead pursuing asset sales to return capital to investors. The manager sold roughly US$1.4 billion of loans across affiliated funds and announced plans to distribute a portion of capital back to investors while restricting standard redemption features going forward. The episode triggered broader volatility among publicly-listed alternative asset managers and renewed focus on the structural mismatch between redemption terms and underlying asset liquidity.
More broadly, industry participants are increasingly focused on the balance between fundraising growth and exit activity across private markets. With distributions from private equity funds remaining subdued and holding periods for portfolio companies extending, investors have become more reliant on secondary markets and redemption windows to generate liquidity. While the underlying credit fundamentals across many portfolios remain stable, the recent rise in redemption activity4 underscores the importance of aligning liquidity terms with the underlying assets and adequately providing structures that allow investors to commit based on preference, for example drawdown, evergreen and interval structures.
A heightened focus on liquidity management, diversification and transparency is becoming essential for private credit managers
Looking ahead, private credit’s long‑term role in portfolios remains intact, but its next phase of growth depends on how effectively the industry adapts to serve a more diversified investor base. This includes placing greater emphasis on liquidity management, diversification, and transparency, particularly within vehicles distributed to private wealth channels. At the same time, institutional demand for private credit remains significant; we continue to hear a desire to diversify away from traditional “middle market direct lending” in search of asset-backed alternatives.
How Victory Park Capital (VPC) is currently situated to capitalize on market dynamics to effectively serve a diversified investor base:
- Specialized ABF platform: VPC as a private credit manager is primarily focused on asset-backed finance (ABF) and has nearly two decades of experience investing across market cycles. Many larger competitors operate broadly on private credit platforms where ABF represents only a small portion of their overall strategy.
- Pure-play exposure: Targeting 95%+ exposure to asset-backed finance, diversified across asset types, industries, borrowers, and underlying collateral pools.5
- Senior-secured focus: Predominantly senior secured lending against diversified collateral pools can provide structural downside protection.
- No origination conflicts: VPC does not directly own or control origination channels, which helps mitigate potential conflicts and allows for independent underwriting across partner platforms. This is particularly important in asset-backed finance, where managers that own origination platforms may face pressure to prioritize deal flow over credit quality or pricing discipline.
Distinct market niche: VPC focuses on a segment of the market where mid- to large-scale specialty finance platforms have strong credit but limited access to securitization markets. We prioritize sole lender relationships and directly sourced/structured transactions, rather than purchasing broadly syndicated securitized ABF paper. We increasingly view the current environment as a period of normalization and structural adjustment, rather than a fundamental shift in the long-term role of private credit in institutional or retail portfolios.
In this context, we believe the managers best positioned to succeed are likely to be those that are disciplined, focused on underlying structure and credit quality, and nimble in allocation, preserving the core benefits of private credit such as diversification and the potential for reliable income and higher returns, while evolving to meet investor needs.
IMPORTANT INFORMATION
Asset-backed finance (ABF) involves loans secured by assets, where the loan value is based on the value of the collateral offered. While it provides a security cushion, it carries risks such as collateral depreciation, borrower default, and potential liquidity constraints during market downturns.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
Private credit refers to direct lending or debt financing outside of traditional banking, typically involving non-publicly traded companies. It may offer higher returns but comes with increased risk including limited liquidity, reliance on the borrower’s financial health, and less regulatory oversight compared to traditional bank lending.
Senior secured loans, including first and second lien positions, are backed by collateral and rank higher in the capital structure, but they are not immune to loss. Collateral may decline in value, be difficult to liquidate, or prove insufficient in distressed scenarios. Subordination to other creditors and deterioration in borrower financial condition can impair recovery, even when a loan is secured.
Victory Park Capital Advisors, LLC, an SEC registered investment adviser, is an indirect subsidiary of Janus Henderson. Registration with the SEC does not imply a certain level of skill or training.
1 Preqin (as cited by S&P Global Market Intelligence, November 2025): private credit assets under management (AUM) estimated at circa US$2.28 trillion in 2025, projected to reach US$4.5 trillion by 2030.
2 McKinsey & Co. Global Private Markets Report; Private equity distributions fell to roughly 6% of AUM in 2025 vs. circa14% long-term average, contributing to limited partner (LP) liquidity constraints.
3 Jefferies; February 2026 Global Secondary Market Review; Global secondary transaction volume reached circa US$240 billion in 2025, reflecting increased demand for liquidity.
4 Redemption requests at some large retail-focused private credit vehicles have exceeded typical quarterly limits, with certain funds reporting withdrawal requests above standard quarterly thresholds.
5 Target exposures reflect current expectations and assumptions, which are subject to change. There can be no assurance that such exposures will be achieved, and actual portfolio composition may differ materially based on market conditions, investment opportunities, and other factors.
Asset-backed finance (ABF): A form of private lending secured against designated company assets, such as inventory, equipment or real estate. Like other loans, it enables businesses to unlock capital to improve liquidity or fund spending plans, often utilized to finance the building or purchase of tangible assets.
Asset-backed securities (ABS): A financial security backed (collateralized) by existing assets such as loans, credit card debts or leases that generate cashflow over time.
Business Development Company (BDC): A type of closed-end fund structure that allows investors to gain exposure to debt/equity investments in small and mid-sized private companies.
Diversification: A way of spreading risk by mixing different types of assets or asset classes in a portfolio on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.
Drawdown, evergreen and interval access/funds: A drawdown investor commits capital that the general partner (GP) managing the fund can request, or “call down” as needed for investments. As the GP creates liquidity either by selling or listing investments, it returns capital to investors through cash or stock distributions; an evergreen investor invests in an open-ended fund structure with no fixed end date that allows periodic subscriptions and redemptions (subject to terms); an interval fund is a closed-end fund that periodically offers to repurchase shares from shareholders (often quarterly), typically subject to limits—so investors may not be able to redeem as much as they want at any single window.
Initial public offering (IPO): The process of issuing shares in a private company to the public for the first time.
Limited partner (LP): Limited partners invest in private equity funds through a commitment to provide a specified amount of capital over the fund’s lifetime. LPs usually have limited control over investment decisions, and limited liability, meaning their potential losses are restricted to their initial capital commitment. They are passive investors who rely on the expertise of general partners (GPs) to manage their investments.
Liquidity: A measure of how easily an asset can be bought or sold in the market. Assets that can be easily traded in the market in high volumes (without causing a major price move) are referred to as ‘liquid’.
Senior secured credit: Refers to loans or debt instruments that hold the highest priority for repayment, backed by specific company assets (collateral).
Senior secured middle-market loans: Debt financing provided to mid-sized companies by non-bank lenders sitting at the top of the capital structure and secured by company assets. These loans offer floating rates, high seniority in repayment, and tighter covenants than syndicated loans, making them popular for private equity-backed buyouts and growth financing.
Volatility: The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility, the higher the risk of the investment.
Yield: The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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