March 24, 2026
Dear Investors and Friends,
Investors today are navigating a wide range of risks, including geopolitical tensions, signs of a softening U.S. labor market, and rapid technological disruption driven by artificial intelligence.
At the same time, developments in private credit markets are highlighting a risk that is often misunderstood: liquidity risk.
Liquidity risk is not primarily about price volatility. It is about whether investors can access their capital when they choose. Recent events provide a useful opportunity to examine how liquidity works and why investment structure plays such an important role.
In one of our last month’s letters, we examined the structure of Business Development Companies and how leverage and capital structure shape the risks borne by investors in private credit vehicles. That discussion naturally raises another question: what happens when investors want their money back?
Recent reports across financial media highlighted several cases in which investors wanted their money back but were unable to obtain it. For example, investors attempted to redeem roughly 14 percent of shares from the $33 billion Cliffwater Corporate Lending Fund during the first quarter. Because the fund’s redemption program allows only periodic withdrawals, redemptions were limited to 7 percent. Similarly, Morgan Stanley’s North Haven Private Income Fund, which manages nearly $8 billion, capped withdrawals at 5 percent of shares and returned less than half of the capital investors requested. While these examples are making headlines today, the issue is not new. Investors in certain funds have long discovered that redeeming capital can be far more difficult than expected when redemption limits are reached.
These developments do not necessarily reflect poor investment performance. Instead, they illustrate something more fundamental: the interaction between investor demand for liquidity and the structure of the investment vehicle itself.
Three Sources of Liquidity Risk
Liquidity risk is often discussed as if it were a single concept. In practice, it typically arises from three sources.
- The Underlying Asset: The first determinant of liquidity is the nature of the underlying asset. Some securities trade in extremely deep markets. U.S. Treasury bills, large publicly traded equities, and many investment-grade corporate bonds change hands continuously and can typically be sold quickly. Other assets trade far less frequently. Loans to privately held companies, private real estate investments, and many direct lending portfolios may offer attractive yields but inherently involve smaller buyer pools and longer transaction timelines. The liquidity of an investment always begins with the liquidity of the asset itself.
- Investment Structure: The second determinant of liquidity is the structure through which the investment is held. Many pooled investment vehicles that invest in relatively illiquid assets attempt to provide investors with periodic liquidity through redemption programs or tender offers. These programs typically allow withdrawals of only a limited percentage of the fund’s assets each quarter. When redemption requests exceed those limits, withdrawals are contractually prorated or deferred. This is precisely what we have recently seen across several private credit vehicles. In these situations, liquidity becomes conditional rather than immediate.
- Other Investors: The third determinant of liquidity is the presence of other investors. In a pooled investment vehicle, investors are effectively partners with every other participant in the fund. The ability to withdraw capital therefore depends not only on the underlying assets and the structure of the vehicle, but also on the actions of other investors. If many investors seek redemptions at the same time, even modest withdrawal requests may be restricted. Liquidity that depends on the behavior of others is inherently uncertain.
Why Structure Matters: The Value of Separately Managed Accounts
Separately managed accounts built from individual bonds operate very differently.
In an SMA, investors do not share a pool of capital with other investors, and there are no redemption gates or quarterly withdrawal limits imposed by a fund structure. If capital is needed, securities can be sold in the market based on prevailing conditions.
In this structure, the only remaining determinant of liquidity is the liquidity of the underlying asset itself. Importantly, the investor ultimately controls that choice. The securities selected for the portfolio determine the liquidity profile of the account. Even within markets such as high yield bonds, some securities trade with active two-way markets and strong liquidity, while others trade far less frequently. Thoughtful security selection allows liquidity to be managed intentionally rather than left to the structure of a pooled vehicle.
How We Approach Liquidity Risk at RCM
At Roosevelt Capital Management, we believe the structure of an investment matters as much as the investment itself.
For this reason, we do not manage pooled bond funds. Instead, we construct separately managed portfolios of individual bonds tailored to each client’s objectives. In this structure, clients own the securities directly rather than shares in a pooled vehicle.
That distinction has important implications for liquidity.
First, there are no redemption gates or withdrawal queues. Clients are not dependent on the behavior of other investors or the policies of a fund manager when accessing capital.
Second, because portfolios are built security by security, the liquidity profile of the portfolio can be intentionally managed. Even within markets such as high yield bonds, some securities trade with deep two-way markets and active dealer participation, while others trade far less frequently. Thoughtful security selection allows liquidity to be evaluated alongside yield, credit risk, and duration.
Finally, individual bonds have a defined maturity and a natural pull to par. Unlike many pooled vehicles, investors are not reliant on secondary market exits to recover principal. Time itself becomes a stabilizing force within the portfolio.
Liquidity risk is often invisible during calm periods and only becomes apparent when investors attempt to access their capital. At Roosevelt Capital Management, our approach is designed to ensure that the structure of the portfolio supports the role fixed income is intended to play: capital preservation, income generation, and dependable access to liquidity.
By building portfolios of individual bonds in separately managed accounts and focusing on securities with active two-way markets, we seek to give clients both transparency and control over their capital.
In fixed income markets, structure is rarely a footnote. More often, it is the story.
With gratitude,
David and Mike
Disclaimer
Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.
While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.