The redemption mechanics matter for the business models of alternative asset managers, which have leaned heavily on wealthy individual investors to fuel private credit growth. Prolonged gating risks denting fundraising through that channel, even where fund returns remain positive, and may push managers toward product changes such as more frequent valuations or larger liquid buffers. For credit markets, the gates themselves are stabilising: they spare funds from selling loans into weak markets, limiting the risk of forced sales feeding through to broader private credit pricing. Scrutiny from regulators and distributors over how “semi-liquid” products are marketed is likely to intensify.
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Earlier:
I thought an explainer might be good. Here it is.
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Private credit funds promise investors a way out, just not all at once, and the 5% rule is what turns a rush for the exit into an orderly queue.
Summary:
- Semi-liquid private credit funds invest in loans that cannot be sold quickly, so they offer limited, periodic exits rather than daily withdrawals
- Most offer quarterly buybacks capped at 5% of shares; when requests exceed the cap, each investor receives a proportional share of what they asked for
- Unfilled requests are not carried forward automatically and must be resubmitted, which inflates later request figures
- Apollo’s flagship fund received requests for about 15% of shares this quarter and paid out 5%, but estimates 2026 requesters will have received about 75% of their money after this round
- The gates protect remaining investors from forced loan sales at low prices, but mean access to cash can take several quarters in periods of stress
Apollo Global Management’s decision to limit withdrawals from its flagship private credit fund for a third straight quarter has put a spotlight on the rules that govern how investors get their money out of so-called semi-liquid funds, and why those rules can leave them waiting in line.
Apollo Debt Solutions BDC, a fund with about $26 billion in assets, is a non-traded business development company. BDCs are a US fund structure that lends to mid-sized companies, and many trade on stock exchanges like ordinary shares. A non-traded BDC does not, so investors cannot simply sell their holding to another buyer. Instead, the fund itself offers to buy back shares at set intervals, usually quarterly, through a process known as a tender offer. Products like this are pitched mainly at wealthy individuals, offering access to the higher yields of private lending with some, but not full, liquidity.
The central rule is the cap. Apollo’s fund, like most of its peers, typically buys back no more than 5% of its shares each quarter. The reason lies in what the fund owns. Private loans are not traded on an exchange and can take time to sell, often only at a discount if the seller is in a hurry. If a fund had to meet every withdrawal request immediately, a wave of redemptions could force it to dump loans at poor prices, hurting the investors who stayed in. The cap, often called a gate, lets the fund meet withdrawals gradually from cash, loan repayments and new money coming in.
When requests exceed the cap, the fund pays investors on a pro rata basis. In the latest quarter, investors asked Apollo’s fund to buy back about 15% of its shares. With the cap at 5%, each investor who asked to leave received roughly a third of the amount they requested. The rest of their request goes unfilled.
This is where headline figures can mislead. Unfilled requests typically do not roll over automatically, so investors who still want out must submit again in the next tender offer. Apollo said most of this quarter’s requests came from investors resubmitting claims left unfilled in earlier rounds, which is why the request figure can stay elevated even as the queue shortens. The pro rata system can also encourage investors to ask for more than they need, expecting only part to be paid. Apollo president Jim Zelter warned in June that requests could rise if some investors tried to game the system in this way.
A better gauge of progress is how much of their money investors have actually received. Apollo estimated that investors who asked to withdraw during 2026 will have received about 75% of the capital they requested once third-quarter payments are made. Requests at the fund fell to about 15% this quarter from almost 17% in the second quarter, and redemption pressure has also begun to ease across other major non-traded private credit funds.
The structure involves a clear trade-off. Listed BDCs offer daily trading, but their share prices can fall well below the value of the loans they hold when markets turn nervous. Non-traded funds avoid those price swings by valuing their holdings periodically rather than letting the market set a price, but the cost is that exits are rationed when many investors want out at once. At the current cap, a fund can return at most around a fifth of its shares in a year.
For investors, the lesson is that semi-liquid means exactly that. Access to cash is available in normal conditions, but in periods of stress, getting fully out can take several quarters. The coming tender rounds will show whether the queue at Apollo and its peers continues to clear.
This is not a retail investor getting his or her funds out, if you know what I mean.
This article was written by Eamonn Sheridan at investinglive.com.