The private‑credit market has exploded over the past decade — from about US$500 billion to roughly US$3 trillion — and its semiliquid structures are now being stress‑tested, pushing some investors into tradeable closed‑end funds yielding around 8.8%. Three market stories — the Iran war, a surge in AI investment and strains in private‑credit — have put pressure on non‑bank lenders and their funds, prompting flows into exchange‑listed CEFs that offer high payouts and daily liquidity.
The problem with semiliquid credit
The private-credit market expanded fast over the past decade, growing from about US$500 billion to roughly US$3 trillion. That growth was fed by investors chasing yield and borrowers — including many software and technology companies — turning to non‑bank lenders for flexible financing. Those funds promised steady income and lower volatility than public markets. But their structure matters: most private-credit funds are semiliquid, allowing withdrawals only up to specified caps and enforcing restrictions when redemption demand spikes.
Managers are now facing an acute test. Redemption requests have risen past the withdrawal ceilings that these funds set to protect portfolios built around less-liquid loans. When too many investors want out at once, managers either limit redemptions or sell assets at fire-sale prices to meet requests. The market pressure has made the funds' liquidity limits more visible to investors — and less attractive.
In practice, that means some investors who thought they could tap their capital quickly are finding they can't. The mismatch between investor expectations and the funds' liquidity rules is the core flaw exposed by recent market moves. And when a fund tightens withdrawals, the result can be a self-reinforcing loss of confidence that drives even more redemption requests.
Where closed-end funds fit in
Closed-end funds (CEFs) work differently. They raise a fixed pool of capital and then list on an exchange, so investors buy and sell shares on the market rather than redeem directly with the manager. That trading creates daily liquidity for shareholders while preserving a stable capital base for portfolio managers to run less-liquid strategies.
CEFs are subject to public reporting and exchange rules, which also changes how investors access income-producing private assets.
There are roughly 400 closed-end funds across strategies from equities to convertible bonds. Many CEFs pay monthly dividends and show yields that are materially higher than most listed equity dividends. The average yield on these funds is about 9% — a figure that now attracts investors who want income without the redemption uncertainty of semiliquid private-credit products.
A tech-focused example: BlackRock's trust
One example drawing attention is the BlackRock Science and Technology Term Trust, which currently yields about 8.8% and trades at a discount of roughly 9.2% to its reported net asset value. The trust mixes publicly traded tech names with stakes in growth-focused private technology companies, providing exposure to both sides of the market while remaining tradeable on an exchange.
On the public side, holdings include large-cap technology stocks that are liquid and price-discoverable. The trust also holds interests in private technology firms, giving investors a route to growth-oriented private assets without tying up capital in illiquid loan structures. Because the fund's shares trade, investors can buy the dividend stream and exit on the market rather than waiting for redemption windows or facing caps.
That blend is what attracts income-focused buyers now. A double effect is at work: market stress in semiliquid credit reduces appetite for private-credit funds, while discounts and high payouts on some CEFs make them look like bargains. The result is a flow of capital toward vehicles that promise similar income but offer daily liquidity through exchange trading.
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BlackRock Science and Technology Term Trust currently yields about 8.8% and trades at roughly a 9.2% discount to its reported net asset value.
This article was created with AI assistance.
