Alternative managers Ares, Apollo and Morgan Stanley have all been hit by withdrawal requests from their private credit funds ranging from 12 to 17 per cent, as elevated redemptions spilled over into the second quarter.
According to a regulatory filing, Ares Management received redemption requests of 14.4 per cent from its non-traded business development company (BDC), the Ares Strategic Income Fund, for the second consecutive quarter. The manager decided to limit withdrawals to its five per cent quarterly repurchase cap.
Also this week, alternatives giant Apollo said it had received withdrawal requests of 17 per cent during the second quarter for its Apollo Debt Solutions vehicle, capping withdrawals at five per cent.
Meanwhile, Morgan Stanley’s North Haven Private Income Fund saw investors seek to withdraw 11.6 per cent in the second quarter.
The developments come after retail-focused BDCs recorded historic redemptions in the first quarter, driven by concerns over lending standards in private credit and growing fears that AI could undermine the software sector, an area to which the asset class has significant exposure.
There were, however, some signs that redemptions were easing in the second quarter, with Oaktree Capital Management’s Strategic Credit Fund recording redemption requests equivalent to 4.5 per cent of assets.
At the same time, despite Blackstone’s BDC seeing investors seek to withdraw 10 per cent of shares in the second quarter, it said in a statement that redemption requests slowed towards the end of May, suggesting outflows may have peaked.
The turbulence in the $400bn BDC market comes as private credit managers have pushed into retail wealth channels in recent years and continue to do so.
However, events as of late have highlighted the volatility of retail investors, who tend to redeem more quickly during periods of market uncertainty.
“Retail investors are quickly becoming a serious growth channel for private markets managers, but against a backdrop of recent redemption pressure in areas such as private credit, access has to be matched by education,” said Hamza Shad, insights manager at Carta, commenting on the increase in withdrawal requests during the second quarter.
However, industry participants have suggested that private credit could start to see a “boost” from the macroeconomic backdrop, as the prospect of higher interest rates could ease some concerns around software exposure and credit quality.
Alongside this, the industry has suggested that private credit fundamentals have improved, with spreads widening. One US manager told Alternative Credit Investor that “the setup in the market is better today than it was a year ago”.
