One fund honoured 13 cents of every dollar requested. Its reported non-accruals were 0.2%.

What is an evergreen or semi-liquid fund?

A vehicle with no fixed life that raises capital continuously and offers investors periodic liquidity, usually a tender or repurchase offer each quarter, capped at a stated percentage of net asset value. The assets are private credit loans with multi-year maturities. The liability is a promise of quarterly liquidity subject to a cap. The cap is not a failure mode; it is the design.

The channel exists because it solved a genuine distribution problem. Private wealth capital could not access a ten-year drawdown fund with capital calls, and this structure gave it a subscription, a net asset value, an income stream and a route out. The growth has been correspondingly fast, though the measured size depends entirely on which universe is counted: roughly 600 billion dollars in net assets across semi-liquid funds (Morningstar, The State of Semiliquid Funds 2026, reported 16 June 2026), approximately 535 billion in evergreen and semi-liquid assets at the end of 2025, up about 28 percent on the year (J.P. Morgan Asset Management, April 2026), and 644 billion in evergreen private credit funds as at 30 June 2025, also up 28 percent (With Intelligence, Private Credit Outlook 2026, June 2026). Three houses, three universes, one direction.

For a borrower the relevant fact is simpler than any of those numbers. A material and growing share of the capital lending to middle-market businesses now sits in vehicles whose investors can ask for it back four times a year.

How do the gates work, and what happened this year?

The standard structure caps repurchases at 5 percent of net asset value per quarter. Requests above the cap are prorated, so an investor asking for the whole holding receives a fraction and must ask again next quarter. Nothing in that is hidden; it is in the offering documents. What was not anticipated was how quickly demand would exceed it.

Redemption requests for non-traded perpetual vehicles rose to an average of 4.5 percent of net asset value in the fourth quarter of 2025 from 1.6 percent in the third, then to an average of 9 to 10 percent of net asset value in the first quarter of 2026 against the 5 percent cap (U.S. Bank Asset Management Group and Fitch Ratings, reported May 2026). Across the twelve largest non-traded vehicles, which hold more than 80 percent of sector assets, requests averaged 12.1 percent in the first quarter with a median of 10.1 percent, totalling over 15 billion dollars of which only 53.4 percent was honoured, and seven of the twelve gated at 5 percent (With Intelligence, published 30 April 2026).

The second quarter moderated without resolving. One 26 billion dollar vehicle disclosed requests of 16.8 percent of shares outstanding, roughly 2.4 billion dollars, its highest since inception, capped at 5 percent (SEC filing, 23 June 2026). A 79 billion dollar vehicle prorated at the cap after requests reached 10 percent for the quarter ending 30 June 2026. One manager's two vehicles received 4.7 billion dollars of requests, down 13 percent from 5.4 billion in the first quarter, with one seeing requests on 18.8 percent of shares and honouring roughly 27 percent of each investor's request, and the other seeing 38.1 percent and honouring roughly 13 percent. Across the market, more than 14.5 billion dollars sat behind gates across around twenty funds, at a median request rate of 8.7 percent (Financial Times, reported July 2026).

The industry read is that the peak has passed. One research house described the sector as seemingly past the peak of the issues, which should help stabilize it into the second half of 2026, while participants still expect requests above 5 percent for several more quarters (Reuters, 2 July 2026). Moderating is not the same as resolved, and a gate that binds for several more quarters is a gate.

Is this a credit event or a liquidity event?

A liquidity event, on the current evidence, and the cleanest proof is in the funds that gated hardest. The two vehicles that honoured 13 and 27 percent of requests reported non-accruals of only 0.2 percent of fair value at 31 March 2026, with no new non-accruals in the quarter. Investors were not leaving because loans had gone bad in those portfolios.

The wider default picture supports the same reading, once the definitional problem is set aside. The same market currently prints payment default rates near 1.5 percent, documentation default rates near 2.5 percent, covenant default rates near 3 percent and rating-agency default rates near 6 percent, and the gap is driven by what each series counts rather than by disagreement about the credit. The global financial regulator reaches the same conclusion independently, putting outright defaults at roughly 1 percent rising to roughly 5 percent once selective defaults are included (Financial Stability Board, Report on Vulnerabilities in Private Credit, 6 May 2026).

Institutional behaviour also suggests a repricing rather than a solvency problem. The share of fund investors planning to increase private debt allocations over the next twelve months fell from 42 percent to 29 percent, but only 18 percent believe there is a systemic problem and 53 percent describe the risks as isolated and above initial expectations (Coller Capital, Global Private Capital Barometer, 44th Edition, 24 June 2026).

What makes it consequential anyway is the mechanism, not the diagnosis. A fund managing a quarterly gate is a fund that must hold liquidity, and it holds that liquidity by not deploying it. The credit quality of the book is beside the point when the constraint is the redemption queue.

How does this change lender behaviour toward borrowers?

In four visible ways, all of which a borrower experiences as something else. New deployment falls first. Direct lending volume fell 55 percent quarter on quarter in the second quarter of 2026 to 33.6 billion dollars across 154 deals, the weakest since the second quarter of 2023, and some vehicles are retaining capital to support existing stressed borrowers rather than funding new transactions (PitchBook LCD and Preqin, via Reuters, 10 July 2026).

Second, unfunded commitments become harder. A delayed draw term loan, an accordion and a revolver are all promises to fund later, and later is precisely what a gated fund is trying to preserve capacity for. The commitment remains contractually binding; the enthusiasm with which conditions precedent are reviewed does not.

Third, portfolio management gets prioritized over origination. That has a benign face and a hostile one. The benign face is that lenders are supporting existing borrowers: sponsor equity infusion amendments rose 31 percent in a single quarter at the end of 2025, alongside maturity extensions and covenant holidays each up 14 percent (Lincoln International, 11 February 2026). The hostile face is that support is finite and directed, and a borrower who is not already a priority does not become one.

Fourth, the loan book itself becomes a liquidity source. Business development companies, semi-liquid vehicles and interval funds are expected to drive roughly 25 percent of 2026 credit-secondary volume (Evercore, H1 2026 Credit Secondary Market Review, July 2026), which is the mechanical link: a gated fund sells loans to fund redemptions. A borrower can find that the counterparty on its facility has changed for reasons that have nothing to do with its own performance.

What should a borrower do about it?

Four things, none of which requires knowing more than is public. Ask, at term sheet stage, which vehicle within the manager's platform is actually funding the facility, and whether it is a drawdown fund, a listed vehicle or a semi-liquid one. Managers run all three and they have different constraints. The answer is not confidential and the question is not rude.

Second, ask what that vehicle has actually funded in the last two quarters rather than what it has committed. Commitment capacity and funding behaviour have diverged this year, and the divergence is the whole point.

Third, read the assignment and transfer provisions in the credit agreement before signing rather than after a transfer. Where loan books are being sold to fund redemptions, the identity of the lender is not as stable as it looks, and consent rights over assignment, together with any restriction on transfers to distressed investors, are worth negotiating at the front end.

Fourth, treat unfunded commitments as conditional and plan liquidity accordingly. A business whose growth plan depends on drawing an accordion in eighteen months should understand who will be funding it and what their queue looks like. The single most useful discipline available is to size the committed facility to the plan rather than relying on capacity that has to be requested later.

The structural point to hold on to is that this channel is not going away. Fund investors are still allocating, the vehicles are still raising, and the underlying loans are still performing at rates that do not remotely justify the redemption pressure. What has changed is that the capital lending to middle-market businesses now has a liability structure of its own, and a borrower who understands their lender's liabilities is negotiating with better information than one who only understands their assets.