A Canary in the Coal Mine
Early Warning Signs of Distress in Private Credit Funds
A key advantage of private credit funds is their liquidity—or at least partial liquidity. Investors often have the flexibility to redeem their funds at will (as with publicly traded BDCs), at scheduled intervals (as with interval funds like CCLFX), or after a lock-up period.
This flexibility offers a significant edge over closed-end funds, which lack redemption options. However, it also places a greater responsibility on investors to actively monitor these investments. Why? Because you may want to exit those investments if warning signs emerge.
Today we will talk about five most common signs of trouble in private credit funds (with additional caveats that are specific to hard money lending funds). When you run across these signs, treat them as if the canary stopped singing: re-evaluate your position, and proceed with caution.
Where do you look for signs of trouble? In financial statements, of course. I urge you to ALWAYS review quarterly financial statement of private credit funds. “Pays like clockwork” doesn’t necessarily mean the fund is generating enough cash net interest income, if the fund is aggressively raising capital.
’s article is an excellent resource:
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