A wave of redemption requests across the private credit industry has left more than $4.6 billion of investor capital trapped behind withdrawal limits, with more asset managers expected to impose curbs in the coming weeks.
Investors have looked to pull roughly $13 billion from over a dozen funds so far this quarter, according to Bloomberg estimates and data from Robert A Stanger & Co. But since the vehicles can cap withdrawals at 5% of net assets per quarter, investors have only been able to access about two-thirds of the cash they've sought, the data show.
Apollo Global Management and Ares Management this week became the latest firms to limit redemptions, joining a list that includes the likes of BlackRock and Morgan Stanley. Still to come is industry heavyweight Blue Owl Capital,
"The market expects redemption requests to continue to increase in the coming quarters," said John Cocke, deputy chief investment officer of credit at Corbin Capital Partners. "In benign environments, there's lots of liquidity and new subscriptions to satisfy redemptions. In times of perceived stress, inflows slow to a trickle and thus significantly more clients are asking for liquidity than providing it."
That, Cocke warns, risks creating a feedback loop in which limiting withdrawals makes it harder to lure new investors, in turn complicating efforts to manage outflows.
Private credit firms have spent years courting retail investors, fueling a surge of new vehicles open to smaller clients. But the funds' hard-to-sell loans create a mismatch when they try to cash out, especially all at once.
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Many of the products are therefore structured as "semi-liquid," typically capping withdrawals at either 5% or 7% of net asset value each quarter, while giving them the flexibility to exceed those limits or further restrict redemptions as needed.
While some firms initially went to significant lengths to meet all withdrawal requests, even those above the thresholds, most have in recent weeks begun capping outflows. Managers say the limits are necessary so they can continue deploying capital, avoid selling off high-quality assets and protect long-term investors.
"You have the remaining investors and those trying to access liquidity, and managers have to balance the needs of both constituents," said Michael Anderson, global head of credit strategy at Citigroup. "If you start meeting redemptions that are too large, what does the surviving portfolio start to look like?"
Liquidity confusion
For individuals who do want out, requests that exceed the limits are typically pro-rated, with only a portion paid out and the remainder pushed to future periods. In some cases, investors have received less than half of what they asked for. They must then resubmit requests in subsequent quarters, with no guarantee of being fully repaid if redemptions remain elevated.
Jim Zelter, president of Apollo, said Thursday that the industry may have failed to clearly explain liquidity restrictions to investors now seeking exits.
"Certain distribution channels in certain parts of the globe" may not have fully communicated the risks inherent to the asset class, Zelter said at the Asia Pacific Financial and Innovation Symposium in Melbourne. "And so you have a mismatch right now in shorter term redemptions."
The private credit funds tracked by Bloomberg that have announced tender results this quarter collectively have about $133 billion in net assets. Across those funds, withdrawal requests have totaled almost 10%, roughly doubling from three months earlier.
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The amounts have varied widely — from about 1.4% for the Golub Capital Private Credit Fund to roughly 14% for the Cliffwater Corporate Lending Fund, which set its cap at 7%.
Ares said a majority of its redemption requests, which totaled 11.6% for the Ares Strategic Income Fund, were from a limited number of family offices and smaller institutions, while Blackstone, which did not limit withdrawals despite requests reaching 7.9% in its Blackstone Private Credit Fund, pointed to the staying power of its institutional capital.
What's more, private credit funds are still seeing some inflows on a gross basis, managers say, with those reviewed by Bloomberg raising more than $5 billion so far this year, according to the latest data available. That's well below previous quarters, however.
"I expect redemptions could remain elevated," said Larry Herman, a managing director at Raymond James Financial, adding "that said, investors continue to allocate new capital to these vehicles."
Representatives for Apollo, Ares, BlackRock, Morgan Stanley, Golub, Cliffwater and Blackstone declined to comment.
Oaktree, Blue Owl
About three-quarters of nontraded private credit funds have announced their tender results so far. Still to come include vehicles from Oaktree Capital Management and Antares Capital.
The most closely watched, however, will be those from Blue Owl, a number of which are set to close their tender windows by the end of the month.
The firm, which has targeted retail investors more aggressively than some of its peers, has borne the brunt of market fears in recent weeks, amid concerns over private credit's exposure to software companies vulnerable to AI disruption and lending standards broadly.
Its Blue Owl Credit Income fund, one of the industry's largest, saw redemptions of around 5.2% last quarter, while the smaller Blue Owl Technology Income fund had withdrawal requests of more than 15%, both of which were met.
Spokespeople for Oaktree, Antares and Blue Owl declined to comment.
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Should redemption requests stay in the double digits, private credit managers will face tough choices in limiting withdrawals, industry observers say.
Blue ow
"They say, 'well, look, for the last 20 quarters you would've been able to get out of all of it because as long as it's under 5%, you're good,'" Boaz Weinstein, who is pursuing a tender offer to buy stakes in Blue Owl private credit funds at a steep discount, said on a recent Money Stuff podcast. "If it's 10%, and that's a lot, you can get out of half, 5 out of 10. But what happens if it's 40? What happens if you're getting out of an eighth of it?
"The reflexivity of falling NAVs, leading to larger outflows, leading to forced selling, leading to falling NAVs. And then you're out in three or four years."
