02 September 2026
Private credit is no longer the preserve of pension funds, insurers and large institutional investors. Increasingly, individual investors can gain exposure through semiliquid funds, nontraded business development companies, feeder structures, digital platforms and regulated long-term investment vehicles.
That expansion creates opportunities to broaden access to an asset class offering floating-rate income, diversification and contractual downside protection. But it also creates a fundamental tension: what happens when inherently illiquid assets are placed inside investment vehicles designed to offer investors periodic liquidity?
This question lies at the heart of Private Credit Funds and the Retail Shift: Structural Vulnerabilities and Policy Responses, a new report from the CFA Institute Research and Policy Center. Authored by Cheryll-Ann Wilson, PhD, CFA, the study examines how the defining characteristics of private credit - illiquidity, opacity and bespoke contracting - interact with the growing retailisation of the asset class.
The report’s central argument is that broader access does not eliminate private credit’s underlying risks. It changes how those risks are distributed, monitored and potentially transmitted through the financial system.
The liquidity paradox
Private credit loans are typically bespoke, long-dated instruments that do not trade frequently. Traditional closed-end funds accommodate this characteristic by locking up investor capital for several years. Retail-oriented structures, however, increasingly offer periodic redemption opportunities. Semiliquid and evergreen funds, for example, may allow investors to redeem shares quarterly, generally subject to limits. This creates a potential mismatch between the liquidity offered by the fund and the liquidity of the loans it owns.
Under normal market conditions, redemption limits, credit facilities and other liquidity-management mechanisms may be sufficient. During periods of severe stress, however, redemption requests could exceed available liquidity. Funds may then need to restrict withdrawals, use gating mechanisms or sell assets under unfavourable conditions. For investors, the important distinction is therefore between access to periodic redemptions and genuinely liquid underlying assets.
When stable valuations conceal changing risks
Valuation presents a second structural challenge. Unlike publicly traded bonds, private loans do not have continuously observable market prices. Many borrowers are unrated, while valuations frequently depend on internal models or periodic third-party assessments. This can produce apparently smoother returns than those observed in public markets. But lower reported volatility does not necessarily mean lower economic risk.
If valuations adjust slowly to deteriorating credit conditions, losses may be recognised with a delay. As retail participation grows, the relationship between valuation and liquidity becomes particularly important: investors entering or leaving a fund need confidence that its net asset value accurately reflects the value of its underlying portfolio. Greater retail participation therefore increases the importance of consistent valuation methodologies, transparent disclosure and independent oversight.
Concentration and leverage can amplify stress
The report also highlights risks arising from concentration and interconnectedness. Private credit portfolios can have significant exposures to particular sectors, borrowers or private equity sponsors. Concentration exists at the manager level as well: the ten largest firms control nearly half of US private credit assets under management.
At the same time, leverage can appear at multiple points in the system - from portfolio companies to investment funds and financing arrangements involving banks and other lenders. These connections matter because private credit does not operate independently from the rest of the financial system. Banks may provide financing to private credit funds, while private equity sponsors can simultaneously influence borrowers, lenders and restructuring processes. Under stress, vulnerabilities can therefore migrate across institutions and markets rather than remaining confined to an individual fund.
Creditor protection is changing too
Liquidity and valuation are only part of the picture. The report also draws attention to the erosion of traditional lender protections through the growing prevalence of covenant-lite structures and more permissive loan documentation. Greater contractual flexibility can benefit borrowers and private equity sponsors, but it can also limit lenders’ ability to intervene when a company’s financial position begins to deteriorate.
The consequences become particularly important during restructurings. Weaker protections can shift negotiating power towards sponsors or selected creditor groups and increase uncertainty over recoveries for other lenders. For investors evaluating private credit, headline yields therefore tell only part of the story. Documentation quality, covenant protection and recovery rights are integral components of the underlying risk-return proposition.
Regulation faces a moving target
The expansion of private credit into retail channels also tests regulatory frameworks largely developed around either traditional investment products or institutional private-market structures. The report identifies gaps in areas ranging from valuation and liquidity-risk management to disclosure, cross-border supervision and the monitoring of emerging structures such as NAV-based lending and tokenised credit vehicles.
Rather than limiting innovation or retail access, the proposed policy response focuses on ensuring that market infrastructure evolves alongside distribution. Among the priorities identified are stronger suitability standards and investor education, greater transparency around valuations and fees, improved liquidity-risk management, better data sharing and cross-border regulatory coordination, and closer scrutiny of leverage, securitisation and potential conflicts involving private equity sponsors.
Access does not change the nature of the asset
The retailisation of private credit is ultimately about more than expanding the pool of potential investors.
An asset class developed largely around sophisticated institutions with long investment horizons is increasingly being made available through products designed for a much broader audience. That creates an opportunity to democratise access to income-generating private assets and potentially support capital formation - but it does not make those assets inherently more liquid, transparent or easier to value. For investment professionals, this distinction is crucial. A more accessible wrapper does not change the economic characteristics of the investments inside it.
As private credit becomes a larger component of wealth-management portfolios, assessing the asset class will therefore require attention not only to yield and diversification potential but also to fund structure, redemption terms, valuation methodology, leverage, creditor protections and investor suitability. The challenge for the next phase of private credit growth is not simply to open the market to more investors. It is to ensure that broader access is supported by the transparency, governance and safeguards required for those investors to understand - and withstand - the risks they are taking.