The Last Man Standing Problem| Income Asset Management

By: Jon Lechte
July 23 2026
4 min
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The headlines say private credit is a sinking ship. ASIC is watching, the Reserve Bank is asking questions, and the Bank of England is running a system-wide review. Blue Owl has capped withdrawals, Blackstone put in US$400 million of its own money to avoid doing the same, and Ares limited redemptions after 14 per cent of investors in one fund asked for their money back.

Here is my reading: the systemic collapse narrative is overshot. But the episode is teaching income investors something important, and it is not the lesson most of the coverage is drawing.

This is a liquidity story, not a solvency story

Look past the headlines and the picture is striking. The big managers have not been forced to dump loans into a falling market. Headline default rates remain low, and even on the harshest measure, counting selective defaults and amend-and-extend exercises, portfolio stress is contained. What is under pressure is not the asset side of these funds. It is the liability side. Investors want their money back faster than semi-liquid structures were ever built to return it.

And here is the uncomfortable truth the gates have exposed: an investor in a semi-liquid private credit fund holds an instrument with debt-like returns and equity-like liquidity. The 5 per cent quarterly redemption window works beautifully in calm markets. Under stress, it does exactly what it was designed to do. It closes. That is not a scandal; it is the structure protecting patient investors from panicked ones. But it means these income investors are, in liquidity terms, effectively equity investors. Many are only discovering that now.

Why it is not systemic

Genuine financial crises need forced selling: leveraged holders dumping assets, prices gapping, margin calls forcing more selling. The gated fund structure short-circuits that loop. A gated fund does not sell. It sits, collects interest, and returns capital as loans repay. The cost lands on locked-in investors as illiquidity and delayed exits. Painful, certainly. But it is a private cost, not contagion.

The market is already pricing this. Listed private credit vehicles in the US now trade at median discounts to net asset value of around 25 per cent, the widest in more than five years. A listed fund cannot gate its share price. Those discounts are the market’s real-time verdict on what semi-liquid exposure is actually worth, and investors in unlisted vehicles should read them as information, not noise.

The last man standing problem

The structural lesson is this. In any pooled, semi-liquid vehicle, your outcome depends not only on the assets but on the behaviour of your fellow investors. If redemptions surge, the gates close and everyone who did not move early is locked in. The investor who stays subsidises the investor who leaves. I call this the last man standing problem, and it exists regardless of how good the underlying credit is.

There is a structural answer: own the asset directly, not through a pool.

That is where bank syndicated loans sit. These are senior facilities to large corporates, often $1 billion or more of total funding, arranged across syndicates of global banks and institutional fund managers. Recent Australian examples involve household names such as La Trobe Financial, Foxtel and Insignia Financial. Every deal passes through the independent credit processes of multiple institutions, each with its own capital at risk, and remains priced and monitored after settlement. That is not a guarantee against a bad credit, nothing is, but it delivers transparency and price discovery that a bilateral property development loan simply does not have.

IAM’s wholesale clients invest in these loans directly, in their own name, through an independent custodian. They see full details of every transaction and decide on each one. No pool, no unit price, no redemption queue, no gate. If other investors panic, it changes nothing about what our clients own. The trade-off is honest: less liquid than a comparable bond, compensated by a yield premium typically in the order of 2 per cent per annum.

Three questions worth asking

Whatever you hold that pays a credit-like return, ask: What exactly do I own? Who decides when I can exit, and at what price? And whose behaviour, other than the borrower’s, can change my outcome? If the answers are a unit in a pool, the manager, and everyone else in the queue, you are carrying the last man standing risk. There are ways to earn an illiquidity premium without it.

Income Asset Management (ASX: IAM) provides fixed income investment services to wholesale clients. This article expresses general views on market structure and does not constitute financial product advice.

To discuss, call us on
1300 784 132

The Last Man Standing Problem

This is a liquidity story, not a solvency story

Why it is not systemic

The last man standing problem

Three questions worth asking

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