Private credit, particularly direct lending, is gaining traction among institutional and individual investors for its potential to offer attractive yield and downside protection. The asset class has become more accessible to retail investors through open-ended evergreen funds (perpetual funds that allow investors to invest or redeem capital at regular intervals). The market is large and includes numerous blue-chip managers. So, when the tide is rising, should every investor jump in the boat?
To put this in perspective, as of May 2025, there were 39 open-ended evergreen private credit funds (known as perpetual private BDCs) in the U.S., capturing $127 billion in net assets¹. Their popularity is due to the ability for investors to subscribe each month, access well-known investment managers (Blackstone, Apollo, Ares, Blue Owl, and others), and, as importantly, receive liquidity over time, albeit with some restrictions. The largest perpetual private credit fund accounted for over $50 billion of net asset value as of June 2025. Many perpetual BDCs have liquidity provisions stipulating quarterly repurchases of fund units limited to 5% of aggregate shares outstanding, subject to board discretion. This structure has become an established model in the U.S.
But how does that work? Liquidity is not typically the first thing that comes to mind when considering private assets, including private credit. “How liquid is my investment?” is a key question when constructing a personal portfolio. Unlike public stocks or ETFs, perpetual funds investing in private assets do not typically offer daily liquidity. This is because the underlying assets are illiquid, and effective asset liability management is required to run the funds. For context, typical middle market direct loans in private credit have tenors of 5-7 years. Does this mean investors have little to no access to liquidity throughout the lifespan of the loans?
Not necessarily. Although individual direct loans may be illiquid, a well-constructed and mature private credit portfolio could provide avenues for short-term liquidity with defined guardrails (typically understood as less than one year for redemption) under regular market conditions. Here we discuss how liquidity in private credit can be impacted by: 1) portfolio construction; 2) type of loan investments; and 3) market dynamics. In each case, we also highlight our approach and how we measure up in the Nicola Private Debt Fund.
Private credit offers multiple sources of liquidity, and a thoughtfully constructed private credit fund can be a compelling way to earn income, preserve capital, and maintain flexibility. The asset liability mismatch is managed through investment and portfolio decisions made with liquidity in mind. As a result, both large institutions and retail investors are accessing private credit through open-ended evergreen funds.
Despite its benefits, we would be remiss without acknowledging the fact that while open-ended structures are designed to provide periodic liquidity, it is by no means a guarantee. Investors should view private assets as long-term positions in their portfolio with investment horizons of 3-5 years or more. Importantly, suitability is unique to each investor and must be carefully calibrated in the context of an overall portfolio and individual circumstances.
As you consider private credit for your portfolio, we expect the following questions could be helpful in your next discussion with your advisor.
- What is the investment horizon for this asset class, and what role might it play in my portfolio?
- What percentage of the fund’s assets under management is represented by the largest position?
- How much of the fund’s interest payments are expected to be generated by cash interest payments as opposed to PIK interest?
- What percentage of the fund is represented by the largest investor?
- What proportion of the loans are first lien, senior secured?
- What proportion of the fund’s assets is expected to mature in each of the next three years?
- How are the underlying assets being valued and how often?
Disclaimer
*All data for Nicola Private Debt Fund is as of September 30, 2025. This material contains the current opinions of the author, and such opinions are subject to change without notice. This material is distributed for informational purposes only and is not intended to provide legal, accounting, tax or specific investment advice. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. All investments contain risk and may gain or lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. This is not a sales solicitation. This investment is intended for tax residents of Canada who are accredited investors. Residency restrictions apply. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. Nicola Wealth Management Ltd. (Nicola Wealth) is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required securities commissions.
