Liquidity in Private Credit: What to Know Before You Invest

Nick Berry
Sep 11, 2025
3 min read

Understanding liquidity in private credit is important before investing

What does "liquidity" mean?

In finance, liquidity simply refers to how quickly and easily you can turn an investment into cash without losing much value.

A savings account is highly liquid because you can withdraw your money instantly. A house, on the other hand, is illiquid because it may take months to sell and the price could change dramatically while you wait.

For investors, liquidity matters because it affects how flexible you are. If you suddenly need money, can you access it quickly? Or are you locked in for years?

Are private credit funds liquid?

Private credit funds typically are not highly liquid.

Unlike listed shares or ETFs that you can sell on the stock market at any time, private credit involves loans made to businesses that don’t trade on public markets. The money is tied up in those loans for a set period, which means it can’t be cashed out easily.

That doesn’t mean you’ll never see your money until the very end of the fund’s life, but it does mean you should expect less flexibility compared to traditional investments like stocks or bonds.

Typical private credit fund liquidity scenarios

Private credit funds vary, but here are the most common structures:

Closed-end funds – Your capital is locked up for the full term (often 5–7 years). You receive interest and principal repayments along the way, but you can’t just redeem (aka take your capital back) whenever you want.
Open-end funds with notice periods – Some funds allow redemptions but only with advance notice, such as 30, 90, or even 365 days. This gives the manager time to sell down assets or manage cash flows.
Periodic redemption windows – A fund might offer quarterly or annual redemption windows, but only up to a certain percentage of total assets. If too many investors want out at once, withdrawals may be limited, deferred, or suspended altogether.
Daily or monthly liquidity funds – Rare in private credit, but some funds that focus on highly liquid instruments (like syndicated loans) can offer shorter redemption periods.

Liquidity risks in private credit

Because private credit is less liquid than many other asset classes, investors face a few key risks:

Redemption restrictions – If many investors want to exit during tough markets, the fund may suspend or delay withdrawals.
Asset mismatch – Funds offering shorter redemption cycles may struggle if their underlying loans are long-dated, creating potential liquidity stress.
Market conditions – During financial crises, even normally “liquid” assets can become hard to sell, magnifying the risk.
Opportunity cost – Tying up your capital means you can’t easily reallocate it to other opportunities if markets shift.

Liquidity risk isn’t necessarily a dealbreaker. Many investors accept it in exchange for the higher returns private credit can offer. The key is making sure the liquidity terms match your personal financial goals and time horizon.

Call to action

If you’re exploring private credit as an investment, don’t just focus on the yield. Always check the liquidity terms of the fund and ask yourself: Am I comfortable locking up this money for years if needed?

Want to dive deeper into how private credit works and common traps to avoid when choosing private credit funds? Check out our free guide '7 Private Credit Traps Smart Investors Avoid'.

References

Investopedia – Liquidity Definition
CFA Institute – Alternative Investments: Private Debt
Preqin – Private Credit Fund Structures and Liquidity

Disclaimer

This article is for general information and education only. It does not take into account your personal objectives, financial situation, or needs. Nothing here should be considered financial advice, investment advice, or a recommendation. All investments carry risk, and you may lose money. Before making any financial decisions, consider seeking independent advice from a licensed professional.