The private credit crisis isn't about underperformance. It's about a structure that was never designed for patient capital.
By Eric Satz
The headlines about private credit have been hard to miss. Retail investors in private credit funds are requesting redemptions at record rates, queues are forming at some of the industry's largest funds, and commentators are asking whether individuals belong in alternatives at all.
While recent performance trends in this asset class have been in line with expectations, investors should also consider structural factors such as liquidity limitations, fees, and terms.. The more important story is about structure: specifically, how the vehicles used to hold private credit can work against investors in ways that the investments themselves don't.
Private credit performance isn't the issue
Private credit as an asset class has performed consistently, with major direct lending benchmarks posting annualized returns in the high single to low double digits even through the rate volatility of recent years.¹ Some of the funds generating the loudest redemption headlines have returned north of 9% since inception2. That isn't a credit quality crisis. The underlying loans are performing and the capital is working.
What's happening is a mismatch, not between investors and alternative assets, but between investors and the vehicles they're using to hold them. Investors should always refer to the private placement memorandum for additional information, disclosures, and a more detailed explanation of expenses, liquidity terms, performance calculations, and risks.
How interval funds created a liquidity mismatch in private credit
The U.S. private credit market grew from roughly $500 billion to $1.3 trillion in five years3. Retail investors moved in fast, drawn by private credit yields and the apparent accessibility of interval funds and business development companies. These products offered quarterly redemption windows, sometimes monthly, which looked and felt like liquidity.
In practice, the underlying assets (direct loans, credit instruments, business financing) can't be unwound quickly. The quarterly window is a feature of the wrapper, not the investment. When markets got choppy and uncertainty rose, investors discovered that the implied liquidity and the actual liquidity were not the same thing.
Today more than $90 billion sits in private credit interval funds, and those assets grew 77% between 2022 and 20254. The capital moved faster than investor education, and that gap is what much of the current coverage is actually about.
Why retirement accounts may be better suited to holding private credit
One aspect that's largely absent from the coverage: thanks to liquidity alignment retirement accounts may be better structurally suited to holding private credit than interval funds.
Retirement accounts don't come with quarterly redemption windows; they have a long investment horizon built in, because that's the nature of saving for retirement. There are no 90-day exit ramps and no mechanism that encourages investors to treat a long-duration investment like a liquid one when the news is noisy.
That's not a limitation so much as the design, and it happens to be well-suited to the asset class.
Historically, private credit outperforms when held over multi-year periods. It rewards patience and was never built to be exited on a quarterly cycle. An investor holding private credit inside a retirement account is structurally aligned with how the investment is meant to work, because both are built around a long time horizon. The behavioral trap at the center of the current controversy (investors treating an illiquid asset like a liquid one) is largely removed when the account structure itself makes that behavior impractical.
The tax advantages are well understood. Less discussed is the behavioral alignment: A retirement account is a natural home for assets that require commitment, because the account itself is built around commitment. A self-directed IRA, in particular, gives investors access to a wide range of alternative assets (private credit, private equity, real estate, and more) inside that same long-horizon structure."
Key questions investors should ask before entering private credit or other alternatives
The private credit story is a useful prompt for a broader conversation about how to evaluate any alternative investment, and not just the asset itself but the structure around it.
- What is the actual liquidity mechanism, and does the investor's timeline match it? A redemption window is not liquidity. Investors should understand what it takes to exit, redemption terms, and how long it could realistically take and whether their situation can absorb that uncertainty.
- What happens during a downturn? Most interval fund offering documents disclose that redemptions can be limited or suspended during stress. That answer matters more than the yield.
- Is the investment being held in the right account? If an investor's time horizon doesn't match the asset's natural lifecycle, no return projection will fix the mismatch. The account structure is part of the investment decision.
What the private credit redemption wave means for long-term investors
The private credit redemption wave is really a story about structure versus asset quality. Private credit as an asset class is performing. The question is whether the vehicle being used aligns with how the investment actually works and whether the time horizon matches what's being purchased.
For investors thinking seriously about private credit, private equity or real assets in a retirement portfolio, retirement accounts like self-directed IRAs are worth understanding, and not just for the tax advantages. The structure of the account is genuinely well-suited to the structure of these investments, and that alignment isn't a coincidence — it's the point.
