Liquidity doesn’t feel important until you need it. And when you do, it’s often the only thing that matters.
In simple terms, liquidity is the ability to access your money when you want it, at something close to the value you expect.
Cash in a bank account is liquid. Publicly traded stocks are generally liquid. A private loan inside a semi-liquid fund is something else entirely.
That distinction is getting renewed attention from two very different corners of the market. On one side, private credit funds have begun limiting withdrawals. On the other, gold, typically seen as a safe haven, has declined sharply during a period of geopolitical stress.
At first glance, these seem like unrelated developments. They’re both examples of the same underlying force: liquidity.
The liquidity illusion
Private credit has grown rapidly by offering access to loans that don’t trade on public markets. For many investors, the appeal is clear: higher yields and less day-to-day volatility than traditional bonds.
But the term “semi-liquid” deserves more attention than it usually gets.
Recent headlines have brought this into focus. Firms such as Blue Owl Capital, BlackRock, Apollo Global Management and Ares Management have all limited or capped withdrawals as redemption requests increased.
These funds weren’t malfunctioning. In many cases, they were doing exactly what their prospectuses allowed, following their fund terms by limiting redemptions to a certain percentage of fund assets. Such terms allow fund managers to avoid the fire sale of assets and help protect other shareholders.
The issue is that liquidity can feel abundant in stable markets but becomes constrained very quickly when many investors want access to their capital at the same time.
When liquidity is tested
The mechanics are straightforward. Investors request withdrawals, but funds that hold illiquid assets can’t easily sell those positions without affecting pricing or remaining investors. Managers are left with limited options: use cash reserves, sell more liquid holdings, borrow if possible, or restrict redemptions.
None of those options are ideal, and each one reinforces the same point: Liquidity isn’t a constant – it’s conditional. And importantly, it doesn’t stay contained to where the stress starts.
When even ‘safe’ assets get sold
During the recent US, Israel, Iran conflict, gold hasn’t behaved the way many investors would expect.
Traditionally, gold is viewed as a hedge against both inflation and geopolitical uncertainty. Yet from the end of February through March 30th, gold declined by approximately 13%, despite rising tensions and increasing inflation concerns.
That disconnect comes down to liquidity.
Gold has become a crowded trade over the past year. When uncertainty increased, investors didn’t necessarily buy more. Instead, many sold to raise cash, take gains, or reduce risk.
In periods of stress, investors tend to sell what they can, not necessarily what they want. Gold, like publicly traded equities, is liquid, which makes it a convenient source of funds.
How liquidity spreads
Taken together, these examples show how liquidity pressure moves through markets.
In private credit, the constraint is structural. Investors can’t always access their capital immediately, so withdrawals are limited.
In public markets, the constraint is behavioral. Investors can sell quickly, so they do.
That creates a feedback loop. Illiquid assets drive the need for cash. Liquid assets become the source of that cash. Prices of those liquid assets can fall, even if their underlying fundamentals haven’t changed.
We’ve seen versions of this before. In early 2020, at the onset of the COVID-19 pandemic, investors sold even high-quality assets simply because they needed liquidity. The driver wasn’t fundamentals, but the need for cash.
At the same time, flows tend to move in the opposite direction as well. When uncertainty rises, investors often increase allocations to cash and money market funds, prioritising stability and accessibility over return.
When access matters most
For individual investors, liquidity tends to matter most at exactly the wrong time.
Liquidity is rarely a concern when markets are stable and access to capital feels easy. It becomes critical during periods of uncertainty, when confidence is lower and financial needs may be more immediate.
It’s similar to owning property. The value may be there on paper, but accessing that value takes time, and often depends on market conditions you can’t control.
In other words, the moment you most value flexibility is often the moment it’s hardest to access.
Why this matters in Cayman
Many residents have financial lives that extend beyond the island. That might mean covering school fees overseas, funding a property purchase, managing business obligations, or simply maintaining a financial buffer.
Those needs don’t pause because a fund has reached its redemption limit or because markets are under pressure.
That’s why I think about liquidity as part of financial planning, not just investment selection. A portfolio should reflect not only return objectives and risk tolerance, but also timing. When might the money be needed, how flexible does access need to be, and do I have the right mix of assets in my portfolio to achieve my goals?
The takeaway
The recent withdrawal limits in private credit funds and the unexpected decline in gold aren’t isolated events. They’re both reminders of the same principle.
Liquidity is easy to overlook when markets are calm.
But when conditions tighten, it becomes the difference between having options and having constraints. For investors who don’t need immediate access to their capital, that distinction matters less, and periods like this are often best navigated by staying invested rather than reacting to short-term volatility.
For those that do, the lesson is more practical. Access to your money matters far more than how it’s performing on paper.
Disclaimer: The views and opinions expressed in this article are my own and do not necessarily reflect those of Radix Financial Cayman, LLC. This article is for informational purposes only and should not be taken as financial advice. Radix Financial Cayman, LLC accepts no liability for any actions taken based on the information presented here.
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