The Liquidity Trap Inside Private Credit
Ask about Knowledge at Wharton
Episode Description
A fund can hold illiquid assets while still promising investors access to their money.
Itay Goldstein, Wharton Professor of Finance, explains why that mismatch can create bank-run-like pressure in semi-liquid private credit funds.
ABOUT THE PODCAST Every day, business scholars answer pressing questions in their research - but what do their insights mean for you? In this podcast, Wharton faculty dive into what inspired their studies and how their findings resonate with the world today. Learn how research insights translate into knowledge you can use, with host Dan Loney.
----- The Wharton School of the University of Pennsylvania is committed to sharing its intellectual capital through Knowledge at Wharton, the school’s online business analysis journal.
Launched in 1999, Knowledge at Wharton offers free access to:
- Articles, podcasts, and videos highlighting Wharton faculty research and analysis of current business trends - Interviews with book authors from Wharton School Press - In-depth series of curated content like Wharton Executive Education’s Nano Tools for Leaders - A searchable database of more than 10,000 articles covering all aspects of business - A weekly newsletter that delivers Knowledge at Wharton insights directly to your inbox
Visit the Knowledge at Wharton homepage: https://whr.tn/3qUpSBE Subscribe to the Knowledge at Wharton YouTube channel: https://whr.tn/3DEAgAU
Brief Summary
The episode covers bank runs, liquidity issues, and the evolution to private credit funds.
Key points
- Understanding Bank Runs. Exploring the classic phenomenon of bank runs and liquidity transformation.
- The Evolution of Financial Institutions. Examining how bank run phenomena have migrated into mutual funds and private credit.
Transcript
we have the well-known phenomenon bankr run uh and that's kind of the classic form of liquidity transformation causing uh fragility because the bank is holding very illquid assets uh but then offers depositors the ability to take their money out whenever they want and this is causing a bankr run phenomenon. Now this has been known for well over a century and then we had uh institutions like deposit insurance that are meant to alleviate this. We saw this type of phenomenon migrating into mutual funds and now we see it kind of in this uh new type of institution kind of a hybrid institution that is the private credit fund a semi-liquid private credit funds.
So we thought it would be interesting to see how these things are manifested. [music]
