When Liquidity Terms and Loan Duration Don’t Match

 

Aligning investor liquidity with the cash mechanics of the underlying loans.

 

One of the simplest ways to evaluate a private credit strategy is also one of the most overlooked:

How long does it take for the underlying loans to turn into cash, and how quickly can investors access that cash?

When those two timelines align, things tend to work as expected.

When they don’t, the risks are not always obvious at the outset.

 

In many strategies, liquidity is presented clearly. Quarterly access. Defined redemption windows. Straightforward terms.

On the surface, it feels predictable.

 

But what matters more is what sits underneath.

Every loan has its own timeline. Some resolve in months. Others take years. When those timelines extend beyond the liquidity being offered, a structural gap begins to form.

 

 

The difference is easier to see when laid out side by side:

 

At Garrington, the approach starts with that reality.

 

If liquidity is going to be offered, it needs to be supported by the way the portfolio behaves.

 

That means focusing on shorter-duration loans. Facilities that naturally convert to cash through repayments, amortization, and refinancing as part of their normal lifecycle.

 

Liquidity is not created at the fund level. It is generated at the loan level.

 

This is not about predicting market conditions.

 

It is about understanding how the structure works.

 

A portfolio that regularly produces cash creates flexibility. It allows liquidity to be met from ongoing activity, rather than relying on external events or assumptions about future markets.

 

But there is a clear question worth asking:

 

Are the liquidity terms offered to investors supported by the cash mechanics of the underlying loans?

 

At Garrington, liquidity is rooted behind real businesses. A company collecting receivables. A borrower refinancing as they grow. An operator of businesses generating cashflow, working through a normal business cycle, and returning capital along the way.

 

These are the sources of liquidity, not the terms themselves.

A portfolio built around shorter-duration loans that regularly convert back into cash creates flexibility.  In private credit, liquidity is not simply a feature offered to investors, it is a function of how the portfolio is built.