The Private Credit Boom is Over: Redemption Requests Exceed Liquidity | James Elbaor | Marlton LLC
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Let's take a quick step back and say one thing that I think is abundantly clear. The private credit boom is is over. We all saw in Forbes recently around the Blue Owl founders, other founders of private credit firms becoming billionaires. That's done. There's no new money, no new capital flowing into that strategy right now. Where I think the next leg comes, which will be probably starting next fiscal year, I fully expect to see a lot of merger activity within the BDC space and private credit space.
This episode is brought to you by Plutus. Later on, you'll hear more about how Plutus is bringing model portfolios from research providers like Citrini, HFI Research, Aurelion, LeShrab, AP Research, and Elliant Capital to your self custody brokerage account. Let's get into today's interview. Welcome to other people's money. I'm your host, Max Wheatley, and I am joined today by James Elbauer, founder and managing member of Marlton LLC. James, thank you so much for being here today.
Thanks, Max.
So you and your firm at Marlton, you're experts on closed end funds, listed private assets, secondaries, and and asset managers really. And it it's a perfect time to have you on because there are a lot of questions about what's happening in private markets, asset management overall, specifically private credit. We've seen private credit gating continue. It's been a story really over the last twelve months, and the redemption requests just continue to exceed the liquidity. We're seeing that again in Q3 in some funds. I guess I just want to start, you know, how big of a problem is this and do yo
I think the crunch of the problem is the way that the product was sold, which we'll get into also when we talk about the asset managers and the valuations there. Gating is doing what it was designed to do. I think the bigger issue is that the product was sold as if the gate did not exist. These are liquid loans in a wrapper that promises periodic liquidity, but can't always deliver periodic liquidity. From academic finance, it's a classic duration risk issue. Similar to like a bank where you're borrowing short and you're lending long, and then when everyone asks for their money back, you have
That brings up the next question is, like, are the loans bad? Right? Is the is what's happening here people didn't understand a product, and as you said, there's just a line to get out from people who have buyer's remorse, or are people leaving because they believe the assets are impaired, the marks are wrong, and, you know, like Jeremy Irons, you can be right or you can be first, and they're trying to be
first. What we can say is is that at least prima facie looking at this from from what we're seeing in the media, AI is certainly eating SAS's lunch. And I know that from a firm, we are using AI tools more than subscribing to some new SAS provider. So you believe that that there is whether it has necessarily showed up in the cash flows of these companies, you believe disruption story. Yeah. Let's talk about what the asset managers can do from here because I think that that's more helpful. It doesn't yes, it's important to understand where the nav marks are, but let's talk about what their choic
Is there is it self dealing when you talk about those mergers where it's, you know, one fund is is buying another fund within the same organization? Who are the strong hands that are the liquidity providers who are stepping in? And do they maybe have more institutional investors that do understand the wrapper, and they're not as worried about their redemption requests in retail because th
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