Now, an increasing number of investors are trying to exit but finding they can’t. Cliffwater is one of many recent examples, see He Brought Private Credit to the Masses. Now the Masses Are Fleeing:

After a handful of high-profile defaults, investors are pulling so much money out of industry funds that managers are restricting withdrawals. Shares of big firms are dropping.

“Cliffwater is the poster child for success in semiliquid funds,” said Brian Moriarty, a senior researcher at Morningstar, referencing the type of fund that allows investors to cash out slowly over time. “But they haven’t had to manage through a downturn, and that kind of experience tests a firm.”

Private funds are not the only ones that haven’t successfully managed through an extended bear market. Few advisors, managers and investors today have. Everyone is in the buying business; very few have a method or plan to protect against significant capital drawdowns. When everyone is paid to bring in assets, very few pay attention to how capital can get out.

As one hedge fund manager put it, the typical growth strategy is “all gas, no brakes.”  Meaningful risk management is very rare. Buyers should beware.