Private credit has moved from a niche strategy into a mainstream investing conversation. The appeal is understandable: it aims to provide higher income, customized lending structures, and access to companies that do not borrow in public bond markets. Regulators and policymakers also acknowledge that private credit can serve a real economic purpose by providing financing to borrowers that may be too small for public markets or outside traditional bank channels.

But its rapid growth has also brought growing scrutiny. The Federal Reserve described the market as growing to nearly $1.7 trillion as of mid-2023, and industry sources now estimate it is well over $2 trillion. Meanwhile, the IMF has warned that moving credit from regulated banks and relatively transparent public markets into more opaque private structures can create vulnerabilities that are harder to detect in advance.

At Grey Ledge Advisors, our bias is toward transparent, liquid public-market investments. We value access to capital and view long lockups, limited information, and unnecessary complexity as significant drawbacks of private investments. That perspective shapes our view here.

This is not to say the asset class lacks merit. Private credit often targets an “illiquidity premium” — yielding roughly 200 to 400 basis points over comparable public debt. However, our argument is that many investors underestimate the cost of that premium: the trade-offs they accept when they move into an asset class that is harder to price, exit, and evaluate under stress.

Download Our One-Sheet Summary on Private Credit

What Private Credit Actually Is

In plain English, private credit generally refers to loans made outside the public markets, often by private funds or other non-bank lenders directly to businesses. Borrowers may value the speed, flexibility, and negotiated terms these lenders can offer. But those same customized features often mean less standardization, less ongoing disclosure, and less day-to-day price discovery than investors would typically get with publicly traded bonds or broadly syndicated loans.

To help frame the differences, consider this baseline comparison:

Illiquidity is Not a Small Detail

The first risk is the simplest one: private credit is often hard to sell.

The Federal Reserve notes that many private credit instruments lack a liquid secondary market, so lenders often hold them until maturity or refinance them. Investors should expect to hold these loans to maturity or face steep losses if they need an emergency exit. That matters because liquidity is not just about convenience. Liquidity is flexibility. It is the ability to reposition when your life changes, when markets dislocate, or when better opportunities appear elsewhere.

That same issue can persist even when private credit is packaged for a broader audience. Interval funds, which may hold less liquid assets, including certain debt instruments, generally offer repurchase windows only periodically, often quarterly, and only for a limited percentage of outstanding shares. Investors may have to wait months for the next window, and even then, may only be able to redeem part of what they requested. A liquidity wrapper is not the same thing as true liquidity.

Opacity Changes the Due-Diligence Burden

The second risk is opacity.

When an investment does not trade in a transparent public market, the burden on the investor rises. SEC investor guidance on private placements notes that these offerings are highly illiquid and often come with limited disclosure compared with registered offerings. FINRA goes further, warning that private placements may involve limited access to comprehensive information needed to value the security, no transparent market price, limited operating history, and, in some cases, no independently audited financial statements. Those are central facts about the investment.

The IMF describes the broader private credit market in similarly direct terms: private credit loans are often unrated, rarely traded, and typically “marked to model” rather than continuously priced in an open market. That means reported stability can sometimes reflect valuation methodology as much as economic resilience. The absence of visible price volatility should not be confused with the absence of risk.

Structural Stress Often Shows Up Late

The third risk is structural stress.

Private credit may appear steady in benign environments precisely because it is not continuously priced like public securities. The real question is how it behaves when liquidity tightens, refinancing becomes harder, or investor redemptions accelerate. The IMF has warned that semi-liquid structures offering periodic redemption windows while investing in illiquid assets can face a meaningful liquidity mismatch. Gates, fixed redemption periods, and suspension clauses may appear adequate in theory, but many of these structures have not been tested in a severe runoff scenario.

There is also a funding angle that deserves attention. A 2025 Federal Reserve analysis found that committed bank credit lines to private credit vehicles had reached roughly $95 billion. The Fed notes that, in times of market disruption, private credit vehicles may be forced to draw on those lines, and correlated liquidity demands could become significant. That does not mean a crisis is inevitable, but it does mean that structural stress can emerge through channels investors may not be thinking about when they see a smooth return series.

“Accredited” is Not the Same as “Appropriate”

One final point is often overlooked: eligibility is not the same thing as suitability.

The SEC explains that private placements are often limited to “accredited investors” in part because those investors are presumed to be financially sophisticated and able to bear losses with less protection than in a registered offering. But that is a legal threshold, not a fiduciary endorsement. Being allowed to buy something does not mean it belongs in your portfolio, fits your liquidity needs, or compensates you adequately for the risks involved.

Our Perspective: Simplicity Still Has Value

Private credit is not inherently without merit. For some institutions with specialized underwriting teams, very long time horizons, and the ability to absorb lockups and valuation uncertainty, it may play a role. But for many individual investors and families, the trade-off is less compelling than the marketing suggests.

At Grey Ledge Advisors, well-constructed portfolios of public securities can provide transparency, liquidity, and flexibility without requiring investors to accept opaque structures or long lockups. When risks, costs, tax implications, and exit options are easier to understand, investors are better positioned to make disciplined decisions and stay aligned with their long-term goals.

Compliance Disclosure: This content is for informational purposes only and should not be considered tax, legal, or investment advice. Strategies such as cash balance plans involve specific regulatory requirements. Always consult with a qualified CPA or financial advisor regarding your specific business situation.

More From Grey Ledge Advisors

When you visit a local cafe to buy a cup of coffee, you’ll have several quick and easy payment options which allow you to get your morning caffeine. You might get some cash out of your wallet or the ATM, or use a credit card, or even write a check if you’re so inclined.

Chances are you have other assets beyond these payment methods, but your friendly neighborhood cafe won’t be inclined to accept them. If you walk up to the barista and try to buy your drink with a stock certificate or a piece of artwork, it makes the transaction a lot more complicated.

This, in a nutshell, is the concept of liquidity, or how quickly an asset can be bought or sold without a significant change to its price. For some assets, this can be done rapidly and efficiently; for others, more time, deliberation, and uncertainty is involved.

Understanding liquidity is an important part of creating a balanced portfolio that fits your personal circumstances. In this blog, we’ll be exploring the concept of liquidity and how it can affect your investment decisions.

Liquid and illiquid assets

Liquid assets have a known value, allowing a purchase or sale to be done quickly. Cash is considered to have the highest liquidity, since it is a universally accepted method of payment, can be exchanged for goods and services, and can be used for purchases without any dickering over valuation.

Other assets are considered liquid since they can be quickly sold and converted to cash if need be. Some examples include government bonds, shares in publicly traded companies, and exchange-traded funds.

Illiquid assets are any investments that are more challenging to buy or sell without having a significant impact on their price. These transactions also tend to take longer since they involve negotiation over the value of the asset. Illiquid assets include real estate, private equity investments, some bonds (such as municipal bonds), and collectibles like art or antiques.

What affects the liquidity of assets?

There are numerous factors affecting the liquidity of assets, including:

• Market size: When an asset is traded on a large and active market, such as a major stock index, it helps guarantee more liquidity since there will be a large number of people willing to buy or sell the asset. Assets that are available in less active markets with a smaller pool of participants will have less liquidity.
• Data: Assets with specific terms and conditions about how they can be bought or sold, as well as detailed information on factors like price history and financial performance, are easier for investors to compare and trade, and therefore more liquid. 
• Accessibility: Liquid assets are typically traded with high frequency during regular market hours, and may be divided to make them accessible to a greater range of investors. This makes them easier to trade compared to illiquid assets, which have more limited opportunities for purchase or sale (as well as higher transaction costs, since they often require intermediaries to be involved in negotiations over the transaction).

How can I manage liquidity risk?

Liquidity risk refers to the possibility that an asset can’t be bought or sold at a reasonable price, which in turn means that you might be stuck with the investment and unable to convert it to its fair value in cash. While this risk is higher with illiquid assets, it can also happen with more liquid assets such as stocks and bonds if market stress, an economic downturn, or negative news about a company’s stock makes investors more cautious about buying or selling these assets.

Just as your investment portfolio should have a diverse range of investment options, it should also strike the right balance with liquidity. This strategy helps avoid a concentration of your investments in either liquid or illiquid assets.

Having at least part of your portfolio dedicated to short-term investments that can quickly be converted to cash, such as government bonds, ensures that you can quickly tap into the value of some of your assets. Some investments, such as ETFs and mutual funds, offer liquidity management tools to help ensure that they can meet redemption requests from investors.

What should my portfolio’s liquidity mix look like?

Deciding how much of your portfolio should be invested in liquid assets will depend on your financial goals, as well as your risk tolerance. Naturally, these will vary for each client.

If you plan to access your funds frequently, or have a specific time when you know you’ll want to do so, your portfolio should have higher liquidity. For example, an investment portfolio such as a 529 plan to save money for a child’s higher education expenses should have high liquidity, since you’ll need to access this at a known point to pay for tuition bills and other expenses.

Rebalancing your portfolio is an important part of liquidity balance. While a retirement portfolio is well-suited for illiquid assets due to its long time horizon, you’ll want to increase the liquidity of this portfolio as you grow closer to the date you’d like to start using these savings. You should also be comfortable with the amount of funds you can easily access through an emergency fund or other options, since market volatility can limit your ability to get a fair price on liquid assets.

Working with a financial advisor can help you find a liquidity strategy that fits your goals. Grey Ledge Advisors has five investment strategies (Capital Preservation, Conservative Income, Balanced, Growth, and Aggressive Growth) designed to suit your circumstances and access your assets when you need them. Contact us today by calling 203-453-9075 or using our online contact form.