Redemption gates are going up across parts of the developed market private credit landscape. Several large funds have restricted investor withdrawals, not because of credit deterioration in their underlying portfolios, but because the structures they built to attract capital cannot reliably deliver the liquidity they implied.
We think this moment deserves more than a passing headline. It raises a fundamental question about private credit architecture. One that is directly relevant to how we have built Gramercy’s platform and why.
How Private Credit Solved a Problem…And Then Recreated It
The original intellectual foundation of private credit was sound. Banks were funding long-dated, illiquid loans with short-term deposits and overnight borrowings, a classic asset-liability mismatch with well-documented consequences. Private credit emerged as the correction: raise committed capital from institutional investors who understood illiquidity, accepted it, and were compensated for it through a meaningful premium over comparable public market exposure.
For years, that model worked precisely as designed. Capital was patient. Returns were attractive. The alignment between asset duration and liability duration was genuine.
What changed was not the underlying credit quality but the vehicle structures and distribution. As the asset class scaled, managers needed new pools of capital and found them in the retail channel. Retail investors were able to access private markets through semi-liquid vehicles such as interval funds, tender-offer funds, and non-traded BDCs. These structures offered periodic liquidity windows and NAV-based pricing against assets that remained illiquid (e.g. corporate loans with multi-year durations and limited secondary markets).
The implicit contract was that investors could participate in private credit’s yield premium without fully bearing its illiquidity cost. The irony should not be lost. Parts of the developed market private credit industry have reintroduced the very structural tension the asset class was originally designed to correct. The mismatch simply migrated from bank balance sheets funded by deposits to fund structures supported by capital that expects periodic liquidity the underlying assets cannot reliably provide.
The incentives that drove this evolution were understandable. The retail channel offered enormous scale. Although, rational responses to incentives can still produce structural fragility. The recent wave of redemption restrictions is not primarily a credit event. It is a liquidity architecture issue, and that distinction matters.
Built for Illiquidity: Why We Built Gramercy Differently
We are writing now not because Gramercy is exposed to this dynamic, but because we are not. The reason we are not, is by design, not by accident.
Our emerging markets private credit platform was built from the outset around a different set of structural principles. Our investor base is overwhelmingly institutional. Allocators who commit capital for the life of the investment and do not expect interim liquidity. That constraint, which may appear to limit growth, is in fact the foundation of our structural integrity.
When there is no periodic redemption mechanism, there is no gate risk. The alignment between asset duration and liability duration is not simulated through fund engineering – it is the starting condition.
This is a deliberate choice we have made and intend to preserve. We have not pursued the semi-liquid structures that have driven scale elsewhere in private credit, because we believe the trade-off – faster asset gathering in exchange for embedded liquidity risk – is not one that serves our investors well over a full cycle.
The Credit Characteristics Reinforce the Structure
Beyond the architecture liability, the credit profile of what we do at Gramercy differs meaningfully from much of the developed market private credit universe.
Our lending is predominantly senior secured and collateralized, at lower leverage levels than comparable developed-market, middle-market transactions. Structures are primarily USD-denominated, removing local currency volatility from the equation. Since the emerging markets lending market is less crowded than its developed-market counterpart, covenant protections have not eroded. We continue to secure terms that have become increasingly difficult to obtain in more competitive markets.
Further, the return premium our investors earn reflects genuine illiquidity as our structure does not attempt to give any of it back through liquidity features that compromise the alignment between assets and liabilities.
What We Think This Means Going Forward
When gates appear, the instinct is to focus on the immediate: which funds are affected, how much capital is involved, and whether contagion follows. Those are reasonable questions.
We believe the more important conversation is about what comes next for private credit as an asset class and specifically, whether the distribution model that drove its extraordinary growth is sustainable in its current form.
We do not expect emerging markets private credit to grow to the scale of the developed market industry, nor should it. However, the current environment has revealed something that turns out to be scarce: a model in which illiquidity is explicit, acknowledged, and priced from the outset rather than layered over with structural features designed to soften it.
As the market recalibrates, we believe the question investors should be asking is not which funds are gating, but which structures were vulnerable to gates in the first place.
We are proud that Gramercy’s platform provides a clear answer to that question. We built our structures to avoid this kind of moment.
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