Private Credit’s Liquidity Problem Isn’t Going Away. Here’s What Actually Fixes It.

Private credit has built a strong decade. The returns held up and the asset class grew from a niche allocation into something serious portfolio builders treat as core infrastructure. The problem it never solved is the one now playing out in public, and how the industry handles it will determine whether the foundational claim actually sticks.

Why Institutions Have Landed Here

After 2008, banks retreated from lending in ways that left real gaps in credit markets, and private credit moved into them. Liability-driven investors didn’t pile in because it was fashionable. They did it because predictable, illiquid cash flows are genuinely useful when managing long-dated obligations. The lock-up that looks like a constraint from the outside is part of what made it attractive to serious allocators. Institutions built portfolios around it, which makes the current stress harder to absorb quietly.

The Crack That’s Now Visible

The tension surfaced when private credit marketing moved downstream to retail investors who weren’t given the same honest account of how these funds work. BlackRock’s $26 billion HPS Corporate Lending Fund recently capped redemptions after withdrawal requests exceeded what the fund could absorb, and it isn’t a one-off. Boaz Weinstein at Saba Capital has been making this argument publicly for months: these funds made liquidity promises the underlying assets were never capable of backing up. Institutions understood the illiquidity and priced it accordingly. Retail investors, by and large, were sold something different.

Where Tokenization Actually Fits

Private credit assets are slow to value, slow to settle, and slow to transfer, and that friction compounds as the asset class scales. Apollo is already responding: the firm is moving toward monthly NAV reporting with an explicit goal of daily NAVs and third-party valuations over time. Marc Rowan has said plainly that traditional asset managers won’t move in size into private markets without daily NAV, transparent pricing, and real liquidity. That’s worth taking seriously coming from the industry’s largest alternative manager. But daily NAVs reported through conventional systems are still a periodic answer to a problem that is fundamentally continuous.

Tokenization addresses this at the architecture level. When private credit instruments settle on-chain, accurate pricing becomes a structural property of the asset, driven by machine-executable smart contracts and real-time oracles rather than a reporting commitment. While tokenization doesn’t magically make an inherently illiquid loan liquid, it creates the infrastructure for secondary trading, reducing the pressure on the fund to liquidate assets or gate redemptions. Collateral mobility improves, and settlement timelines compress in ways that change what these instruments can actually do. JP Morgan, Euroclear, and the DTCC all have serious initiatives running in this space. For Algorand, this is familiar ground. In “Exit Sandbox,” we made the case that tokenization had moved past the experimental phase. What’s playing out in private credit right now is what that next phase looks like in practice.

What Foundational Actually Requires

Being a reliable yield source is one bar. Holding a foundational position in institutional portfolios is a higher one, and private credit is being tested on exactly that distinction right now. To hold it, the asset class needs to function as collateral, move across markets without operational drag, and support a wider pool of capital than current infrastructure allows. Funds gating redemptions aren’t demonstrating strength. They’re showing that the product got ahead of the foundation it was built on. The infrastructure question and the asset question are more connected than the industry has wanted to treat them, and progress on one determines what’s possible with the other.

Private credit has made its case on returns. The open question is whether it can make the same case on flexibility and access. The current redemption pressure isn’t a reason to write off the asset class. It’s a reason to take the infrastructure question more seriously than the industry has historically been willing to. Asset managers who fail to actively integrate on-chain architecture will risk obsolescence as the capital increasingly deviates to the highest level of capital efficiency. If the plumbing catches up to the product, the foundational argument holds, and the pool of capital private credit expands considerably. If it doesn’t, private credit remains a strong allocation for a specific kind of investor with a specific tolerance for friction. That’s not a bad outcome. It’s just a much smaller story than what this asset class is capable of becoming.

About the Author
Article authored by Amar Odedra, Global Head of Investments and Capital Markets, Algorand Foundation