Citi Wealth Chief Backs Private Credit Despite Volatility

Why Citi is Standing By Private Credit

If you have been keeping an eye on traditional wealth management and private markets recently, you might have noticed some turbulence. Withdrawal requests at private credit funds have jumped well beyond their usual limits. Yet, despite this pressure, major financial institutions are keeping their long-term strategies in place.

Andy Sieg, who leads Citi's wealth management unit, confirmed that the bank continues to recommend private credit to its wealthy clients. Even though investors are trying to cash out faster than these funds normally allow, Citi views these assets as foundational pieces of a portfolio rather than short-term trading plays.

What is Private Credit and How Do BDCs Work?

To understand why this is making headlines, it helps to break down how private credit operates. Normally, when mid-sized companies need money, they might go to a traditional commercial bank or issue bonds. Private credit funds cut out the middleman by providing loans directly to these businesses.

Many of these arrangements are packaged as Business Development Companies, commonly known as BDCs. BDCs hold multiyear corporate loans, offering investors steady income payouts. However, because those underlying corporate loans last for several years, BDCs cannot quickly convert all their assets into cash overnight.

To keep the fund stable, non-traded BDCs usually put a strict gate on cash redemptions. In most cases, they cap client withdrawals at around 5% of total assets per quarter. When investors request more cash than that 5% cap, funds are forced to prorate payouts, meaning clients cannot cash out all of their money at once.

The Withdrawal Jam: Higher Demand Meets Stricter Gates

Right now, demand to exit these funds remains elevated compared to historical averages. Data from Valuation Research showed that redemption requests across 11 of the 14 largest non-traded BDCs averaged 13.0% in the third quarter. While that is a minor drop from 13.9% in the second quarter, it is still more than double the standard 5% quarterly limit.

• Quarterly Redemption Requests: Averaged 13.0% in Q3, down slightly from 13.9% in Q2.
• Standard Fund Limits: Most non-traded BDCs cap payouts at 5% per quarter to protect portfolio stability.
• Public Market Discount: Listed BDCs are currently trading 10% to 20% below the reported net asset value of their underlying holdings.

This disconnect between public pricing and private valuations creates an interesting dynamic for advisors. While listed BDCs trade at noticeable discounts, non-traded counterparts maintain reported valuations that feel higher, leading some investors to seek exits while gates remain active.

Andy Sieg's Defense: Long-Term Commitments Over Quick Trades

Appearing on CNBC's Halftime Report, Andy Sieg explained why Citi is not backing away from these illiquid assets. In his view, high-net-worth investors should view private credit and private equity through a decades-long lens rather than reacting to temporary market shifts.

Sieg emphasized that clients typically commit capital to these vehicles for 10 to 30 years. Because of these long horizons, the primary factor determining success is not short-term liquidity, but whether a bank's due diligence team properly evaluates and selects top-tier fund managers.

"Clients have been happy with the returns that they've had," Andy Sieg noted during his CNBC interview.

Disclaimer on Historical Performance: Past performance of financial assets or investment funds does not guarantee future results. Investors should carefully evaluate risks before allocating capital to illiquid products.

Regulatory Warnings: The IMF Flags Potential Stress

While wealth management teams express confidence in long-term manager selection, international bodies are keeping a watchful eye on potential risks. In an October blog post, the International Monetary Fund (IMF) highlighted private credit as an asset class that could amplify broader market stress.

The IMF pointed out that if economic conditions tighten suddenly, corporate borrowers might rapidly draw on their pre-committed direct-lending credit lines. If many companies pull cash at the same time while retail investors are simultaneously trying to withdraw funds, fund managers could face serious liquidity bottlenecks.

Inside Citi Wealth's Financial Momentum

Citi's continued support for alternative assets comes alongside steady overall growth inside its wealth division. Wealth revenue at the firm has now grown for 10 consecutive quarters, posting a 15% year-over-year increase in the third quarter.

• Fresh Capital Inflows: Citi brought in a record $38 billion in net new investment assets during Q3.
• Client Base Activity: A internal memo from Sieg revealed that existing clients drove most of these new inflows by moving more of their overall wealth to Citi.
• Revenue Breakdown: Net interest income jumped 20%, while non-interest revenue increased by 5%, according to Family Wealth Report data.
• Organic Growth Rate: Sieg confirmed organic flow growth—which ignores overall market appreciation—exceeded 10%.

Interestingly, higher deposit income played a larger role in driving Citi's recent revenue growth than direct investment fees. However, maintaining organic asset growth above 10% demonstrates strong core client demand despite broader financial tailwinds.

The Bigger Picture for Wealth Investors

The ultimate takeaway from this situation comes down to how investors weigh liquidity against yield. Private credit offers attractive income potential, but it comes with real tradeoffs when markets turn volatile and redemption limits kick in.

How clients navigate these withdrawal restrictions over the coming quarters will offer a major test for wealth management platforms. If investors remain comfortable holding through redemption gates, private credit will likely remain a pillar of modern multi-asset portfolios for years to come.