- Private funds can impose “gates” that cap, delay, or suspend redemptions when withdrawal demand rises against illiquid portfolios.
- Recent private-credit stress has pushed some funds, including Blue Owl Capital Corporation II, toward restricting withdrawals as redemption requests climb.
- Investor protections are in flux after the SEC’s 2023 private-fund disclosure and preferential-treatment rules were vacated by a U.S. appeals court in 2024.
- Investors should review offering documents for notice periods, gate thresholds, liquidity buckets, and backlog risk, especially as retail access to private-fund exposure expands.
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“Gating withdrawals” refers to contractual or policy-based restrictions private funds place on investor redemption requests—either by capping withdrawals at a fixed percentage, delaying payment, suspending redemptions entirely, or employing side-pockets. While often disclosed in fund offering documents, recent market stress highlights how gating becomes a practical tool when funds’ illiquid assets, exit delays, or directional shifts force liquidity management decisions.
Case Studies & Trends:
– In November 2025, Blue Owl Capital Corporation II, a private credit fund for retail investors, reportedly saw $150 million in redemption requests—about 15% of its total assets—leading it to consider merging with another fund. The merger was ultimately called off, and the fund remained closed to redemptions but planned limited withdrawals in early 2026.
– Across major private credit funds managed by firms like Apollo, Ares, and Blackstone, last-quarter 2025 redemption requests averaged ~5% of portfolio value, totaling over $7 billion. Though many funds have met demands so far, increasing interests are raising concerns about liquidity risk and potential gating.
Regulatory and Legal Backdrop:
– In August 2023, the U.S. SEC adopted rules aimed at increasing transparency among private fund advisers—including prohibitions on preferential redemption treatment and mandates for disclosure and quarterly statements.
– In June 2024, these “Private Funds Rules” were vacated in full by the U.S. Fifth Circuit Court of Appeals, which held the SEC exceeded its statutory authority under the Advisers Act. Thus many protections regarding preferential treatment and redemption rights remain in regulatory limbo.
– Separately, SEC Chair Paul Atkins and Director Natasha Greiner have moved in mid-2025 to eliminate a longstanding SEC staff limitation that restricted retail access to registered closed-end funds investing more than 15% of assets in private funds. This opens more retail exposure while pushing liquidity risks toward the forefront.
Strategic Implications:
– For Limited Partners (LPs): Need to perform careful due diligence, especially on redemption terms, notice periods, liquidity buckets (how much is marked liquid vs illiquid), gate thresholds, and history of invocation. LPs dependent on distributions or needing liquidity must assess the risk of delays—or inability—to redeem as scheduled.
– For General Partners (GPs): Managing investor expectations becomes more challenging; if gates are hit, there is reputational and fundraising risk. GPs must balance maintaining sufficient dry powder, aligning exit strategies, and avoiding excessive illiquidity.
– For Regulators: The vacated rules leave a gap in investor protection, particularly regarding preferential terms and redemption rights. Regulatory trends suggest increased scrutiny, but clarity is lacking.
– Market-wide: Rising redemption pressure across private credit—paired with weak exits in private equity—raises risk of widespread gating in stressed economic conditions. Funds with large exposure to illiquid or thinly traded assets are most vulnerable.
Open Questions:
– Under what specific conditions will commonly used gates be triggered? What thresholds, hardship, or stress metrics trigger them?
– How will investor documentation evolve (e.g., more flexible gates, lock-ups, restructuring exit rights)?
– Will regulators reintroduce or propose legislation closing the gap left by the vacated SEC rules?
– To what extent will retail access push liquidity issues further into funds that historically served institutional investors?
Supporting Notes
- Blue Owl Capital Corporation II experienced about $150 million in redemption requests in 2025, about 15% of the fund’s assets, prompting it to close to redemptions and potentially gate withdrawals.
- Major private credit funds faced approximately $7-billion in redemptions over late 2025, at ~5% of portfolio value, amid concerns over credit quality.
- SEC’s August 2023 rules would have prohibited preferential redemption or information rights having material negative effects on other investors, but these rules were vacated in June 2024 by the Fifth Circuit Court.
- Since 2002, an informal SEC staff position had limited retail investors’ access to closed-end funds investing more than 15% in private funds; in mid-2025, that position was dropped so closed-end funds would no longer have to impose those limits in registration review.