FCA faces pressure to strengthen private credit liquidity disclosure rules as major fund managers gate redemptions across the $1.8 trillion market
The systemic activation of redemption gates — contractual provisions that cap the proportion of capital investors can withdraw in any period — by major private credit fund managers including Apollo Global Management, BlackRock and Ares Management has reopened the regulatory debate around liquidity disclosure standards for semi-liquid investment vehicles in both the UK and EU. The FCA (Financial Conduct Authority) has been monitoring the private credit market's rapid growth since 2022, when its expansion accelerated as banks pulled back from leveraged lending following the gilt crisis. Semi-liquid structures — BDCs (Business Development Companies) and ELTIFs (European Long-Term Investment Funds, the EU's vehicle for retail access to private markets) in particular — allow retail and institutional investors periodic redemption rights, but invest in illiquid loans that cannot be easily sold if redemption demand surges. The current episode — described as unprecedented in scale by market participants — creates a live test of whether post-2022 regulatory reforms to semi-liquid structures have been adequate. In the EU, the revised ELTIF 2.0 regulation (which came into force in 2024) introduced new liquidity management tools for retail-accessible funds, including mandatory liquidity buffers and gating thresholds. In the UK, the FCA's ongoing review of the Long-Term Asset Fund (LTAF) framework, designed to allow institutional investors access to private markets with limited liquidity, may be accelerated in response to the current stress.
Why this matters
The regulatory significance of this episode extends well beyond individual fund managers: it tests whether the FCA and ESMA (the European Securities and Markets Authority) have done enough since 2022 to address liquidity mismatch risk in the private credit market. FCA-regulated fund managers activating gates must comply with notification obligations and review whether disclosures in their offering documents adequately described the liquidity risk investors now face — any deficiency opens a mis-selling or inadequate disclosure claim under the Financial Services and Markets Act 2000. The 'why now' trigger is the simultaneous hit from rising credit defaults and macro shock, exposing how private credit portfolios were stress-tested only in benign conditions. Regulatory advisers at City firms will be fielding urgent instructions from fund managers seeking to ensure their gate activations are legally sound.
On the Ground
A trainee in a financial regulation team would draft regulatory notification letters to the FCA confirming the basis for gate activation under fund documentation, update a compliance gap analysis memo comparing the fund's liquidity management procedures against FCA and ESMA guidance, and maintain a remediation tracker logging notifications and investor communications as they are dispatched.
Interview prep
Soundbite
Gate activations at private credit giants will accelerate FCA and ESMA liquidity regulation timelines — every major fund manager needs a disclosure audit now.
Question you might get
“If an FCA-regulated fund manager activates a redemption gate, what disclosure obligations arise under the UK fund management regime, and at what point might investors have a viable mis-selling claim?”
Full answer
Multiple major private credit fund managers have activated redemption gates in response to unprecedented withdrawal requests driven by credit stress and the Iran conflict. This directly implicates the FCA's framework for semi-liquid fund structures and whether existing disclosure standards under the FSMA 2000 and LTAF rules are adequate. The wider regulatory picture is an arms race between product innovation in private credit and regulators struggling to extend retail-investor protection frameworks to illiquid assets. This episode will almost certainly accelerate FCA and ESMA consultations on liquidity buffers and gate disclosure standards — generating a sustained flow of regulatory advisory and compliance mandates for financial regulation teams in City firms.
My notes
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