A Regal Partners-backed non-bank lender has told investors they’ll wait until mid-2027 to access their capital from a flagship fund that froze redemptions twelve months ago. The original gate has now been extended by another two years, pushing the total lockup to three years from the initial freeze date.
The move raises a question beyond this single fund: are other private credit vehicles holding loans they can’t exit without crystallising losses, and if so, how many more gates are we one stress event away from seeing?
What a redemption gate actually does
A gate suspends investor withdrawals when a fund can’t meet redemption requests without selling assets at fire-sale prices or breaching loan covenants. It’s a circuit breaker, not a collapse, but it tells you the underlying loans are illiquid enough that normal exit mechanisms have failed.
Private credit funds lend to developers and smaller commercial projects that banks won’t touch, typically at higher rates and shorter terms. The catch: those loans don’t trade on a secondary market. If a borrower can’t refinance or a project stalls, the lender holds the loan to maturity or takes possession of the asset. Neither process is quick.
When rates rose and construction costs blew out in 2022-23, some developers couldn’t roll their debt. Projects sat half-finished. Lenders faced a choice: extend and pretend, or force a sale into a weak market and book a loss. Extending buys time but keeps capital tied up, which creates a mismatch if investors want out.
Why this extension matters
The original twelve-month gate implied the fund expected to work through problem loans or see enough projects settle to free up cash. Extending by two more years suggests that timeline was optimistic, or conditions worsened, or both.
Three scenarios fit the facts:
- Base case: loans are performing but illiquid. Borrowers are paying interest, projects will complete, but the fund needs time to let them mature rather than force early exits at a discount.
- Stress case: some loans are non-performing. The fund is managing workouts, waiting for planning approvals to unstick, or negotiating with developers who can’t service debt at current rates.
- Contagion case: the fund is fine but can’t sell loans into a secondary market because other funds are in similar positions and no one wants to be the first buyer at realistic prices.
We don’t know which applies here, but the two-year extension pushes the resolution timeline well past the RBA’s forecast rate-cutting cycle, which suggests the fund isn’t banking on a quick bounce in property or construction activity to solve the problem.
The private credit concentration risk no one tracks
Australia’s private credit market grew from around $10 billion in 2015 to an estimated $100 billion-plus by 2023. Much of that capital went into residential and commercial construction as banks pulled back post-royal commission.
The problem: there’s no central registry of who holds what. When a construction finance deal collapses, investors in that specific fund find out. But if ten funds are all holding loans to stalled townhouse projects in the same outer-ring corridor, exposed to the same planning bottleneck or the same subcontractor insolvency, you don’t see the systemic shape until multiple gates go up at once.
Retail investors in these funds often don’t realise the liquidity mismatch they’ve bought into. A fund offering quarterly or annual redemptions sounds liquid compared to direct property, but the underlying loans are five- to ten-year commitments with no exit unless the borrower refinances or the asset sells. That structure works when credit is loose and property is rising. It breaks when both reverse.
Key numbers
- Private credit in Australia grew from ~$10bn in 2015 to ~$100bn+ by 2023
- Typical development loan term: 18-36 months, often extended if projects stall
- Fund redemption cycles: quarterly to annually, creating a maturity mismatch
- This fund’s freeze: now three years from initial gate date (mid-2024 to mid-2027)
What could force more gates
Three pressure points to watch over the next 12 months:
- Migration slowdown: if apartment presales dry up because net migration falls faster than Treasury forecasts, developers can’t meet bank refinance conditions, pushing them back to private credit or into distress.
- Construction cost stickiness: material and labour costs have plateaued but haven’t fallen. Projects that pencilled at 2021 prices are still loss-making at 2025 costs, even with rates coming down.
- Refinancing cliff: loans written in 2022-23 at 9-12 per cent are maturing in 2025-26. If borrowers can’t refinance at bank rates (currently 6.5-7.5 per cent), they either pay up for another private loan or hand the keys back.
The mechanics are simple: if enough loans in a portfolio can’t be exited or refinanced, the fund runs out of cash to meet redemptions, and the gate stays shut longer.
The trade-off private credit investors face
If you’re holding units in a gated fund, you have two options: wait it out or sell your units at a discount on the secondary market (if the fund structure allows it). Secondary buyers typically demand 20-40 per cent discounts to face value, because they’re taking on your illiquidity risk plus the chance the fund’s NAV is overstated.
That discount is the market’s real-time estimate of how bad the underlying loans are. If discounts widen across multiple funds, that’s your early warning that the problem is bigger than one lender’s liquidity management.
Scenarios worth pressure-testing
If you’re invested in private credit or considering it, ask:
- Does the fund publish loan-level data (LVR, borrower type, project status) or just aggregate NAV?
- What’s the longest any loan in the portfolio has been extended past its original maturity?
- How much of the portfolio is construction vs land banking vs stabilised commercial?
- Has the fund written down any loans in the past 12 months, and if not, why not?
If you’re a developer or investor relying on private credit to refinance or settle, plan for:
- Rates staying higher for longer: even if the RBA cuts, private credit reprices slowly because it’s driven by fund redemption pressure, not the cash rate.
- Tighter LVRs: lenders burned by stalled projects are requiring more equity or stronger presales before committing.
- Longer approval timelines: funds are doing more due diligence on planning risk and end-buyer demand, which adds weeks to the process.
What this means for you
If you hold private credit exposure directly or through super, check whether your fund has disclosed any redemption restrictions or NAV adjustments in the past six months. If not, that’s not necessarily good news, it might just mean they haven’t tested liquidity yet.
If you’re considering private credit for yield, understand you’re taking construction and developer credit risk in exchange for 3-5 percentage points over cash. That trade works when projects complete on time and borrowers can refinance. When either breaks, your capital is locked until the fund works through it, and that timeline is measured in years, not months.
For developers, this is a reminder that private credit is not interchangeable with bank debt. It’s faster and more flexible, but it reprices faster when things go wrong, and if your lender gates their fund, your refinance option disappears overnight.
Start here: if you’re invested in private credit, read the latest fund update and look for three things: redemption status, loan maturity profile, and any mention of extensions or workouts. If the language has shifted from “performing as expected” to “actively managing” or “working with borrowers,” that’s your signal that liquidity is tighter than the NAV suggests. Subscribe to the newsletter for weekly updates on credit conditions and fund stress signals.
General info, not financial advice.
