Gategate: 3 lessons from the rise in private credit redemption requests

While that may sound like a broad claim, it’s becoming increasingly difficult to dispute given the recent surge in redemption requests across private credit funds. At the very least, it’s clear that a significant share of investors in the space shouldn’t have been there to begin with.

With that said, there are clearly more responsible ways to bring private markets to individual investors without shutting off access altogether. Recent gating announcements have made clear that it’s time to take stock. If the industry doesn’t adapt, Lee’s case only grows stronger.

Lesson 1: Investors need to be comfortable with gating

When a new investor is introduced to private markets, one of the first questions they ask is, “What happens if I want my money back?”

We all know the answer. Private funds offer limited liquidity windows, but those windows only function if redemptions remain manageable. The challenge is that even the strongest managers aren’t immune to a wave of withdrawal requests, which means this risk can never be eliminated.

That’s why it’s critical to set proper expectations up front. The right message is something along the lines of, “If too many investors ask for their money back at once, they’ll have to wait their turn.” Never tell clients not to worry or that it’s unlikely to happen.

If a client can’t accept that trade-off, their capital needs at least some liquidity. It doesn’t belong in private markets. This should be obvious, but the recent surge in redemption requests suggests many investors went in with the wrong expectations.

Now that we have clear, real-world examples of gates slamming shut at multiple funds, use them to make sure your clients have a clear view of the risks up front.

Lesson 2: Stop selling private markets funds by touting low volatility

As someone who regularly evaluates private markets funds, I often see funds highlight their “risk-adjusted returns,” using volatility as the main measure of risk. That approach has some value in public markets, where market-clearing prices are continuously updated. But it’s far less meaningful when a fund manager assigns their own valuation to a fund’s assets.

Nowhere is this disconnect more obvious than when a fund gates. At that point, the same valuations underpinning the fund’s supposedly low volatility become inaccessible to investors.

The true risk of any asset class should be assessed independently of its wrapper. Credit, for instance, should be evaluated based on fundamentals like seniority, interest coverage, loan-to-value, default history, collateralization and borrower cyclicality.

Those metrics matter whether the assets sit in a private fund, a public fund or even if someone is lending money to a friend. Once we ignore those fundamentals and start relying on a fund structure to provide safety, gating events have a way of reminding us what risk really looks like.

Lesson 3: It’s time to retire the “semi-liquid” label

This might be the simplest and most overdue change the industry can make. The word sounds harmless, but it sends the wrong message. “Semi-liquid” implies that a fund is partly liquid all the time, when in reality private market vehicles tend to swing between two extremes: sometimes they allow liquidity and other times they don’t allow it at all.

The problem isn’t just semantics. The label encourages investors to underestimate the structural rigidity of these products and overestimate their ability to access capital when markets tighten.

Marketing a fund as semi-liquid can muffle what should be a clear warning: liquidity is conditional, not continuous. When redemptions spike or markets seize up, semi-liquid quickly becomes illiquid.

To be clear, private markets managers are not enjoying this period. Yet if the industry can learn the right lessons, it has a chance to emerge stronger, with a clearer message and a more committed investor base.

Time will tell whether that happens. If it doesn’t, we may have to give Lee’s view more credit than we otherwise would.