There was interesting news overnight: Two of the biggest names in private credit, Ares Management and Apollo Global Management, have limited how much investors can take out of their funds. Investors asked for more than 11% back and were capped at 5%. Less than half. And it is not just them. BlackRock, Blue Owl and Morgan Stanley have all hit similar limits.

What on earth is going on? It all comes down to one thing, liquidity, or in this case, the lack of it. Liquidity is simply how quickly you can turn an investment into cash. I wrote about the importance of liquidity in designing your portfolio back in 2024 (read it here), and it feels even more relevant today.

In my view, liquidity is one of the most overlooked characteristics in a portfolio. Over the past decade, we have seen a steady rise in illiquid private assets such as private credit, private equity and unlisted real estate. At the same time, some high-net-worth (HNW) advisers are recommending base allocations of 40% to 60% to these types of illiquid investments. That makes it even more important to really understand the role liquidity plays in your portfolio.

There is nothing wrong with illiquidity; you just have to manage it as part of your portfolio construction. You must always understand the characteristics of what you are investing in and why it suits your needs. In my view, investments that say they have liquidity, but are investing in illiquid assets such as private equity, private credit, unlisted real estate, etc., should be treated as illiquid. Full stop. This is because the truth of investing in illiquid assets is “No one wants their money back until they’re told they can’t have it!” Liquidity can dry up in a flash, and this is what is happening right now.

I am not blaming the managers. This is simply how these structures are designed to work. They are doing the right thing, stopping redemptions to give things time to work out.

The key, as always, is understanding your portfolio. How it is built, how it behaves, and whether it actually aligns with what you are trying to achieve.

Because liquidity is never tested on the way in. Only on the way out.

Kind regards,

Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently

General Advice Warning: Wealth Differently holds an Australian Financial Services licence to provide services to wholesale clients only. The information on this website is only for persons who are wholesale clients as per s761G of the Corporations Act. The information includes general advice which does not consider your particular circumstances and you should seek advice from Wealth Differently who can consider if the strategies and products are right for you. You should also understand that past performance is often not a reliable indicator of future performance and should not be solely relied upon to make investment decisions.

Wealth Differently Pty Ltd AFSL 547820.