The private credit industry is experiencing “growing pains” rather than a liquidity crisis as the asset class expands to a broader investor base, according to Vistra Fund Solutions, following Blackstone’s decision to cap redemptions after a surge in withdrawal requests.
This week, the Blackstone Private Credit Fund (BCRED) reported an increase in redemption requests during the second quarter, with investors seeking to withdraw 10 per cent of shares. However, the fund said it would honour requests only up to its quarterly redemption limit of five per cent.
BCRED, the world’s largest private credit fund, is one of a number of semi-liquid private credit funds to report elevated withdrawal activity in the second quarter – although the fund said redemption requests slowed towards the end of May, suggesting outflows may have peaked.
Investors requested to redeem around 10 per cent of shares in the $79bn (£59bn) fund in second quarter, compared with 7.9 per cent in first quarter. But BCRED has capped withdrawals at its five per cent quarterly repurchase limit, effectively gating the fund – a standard mechanism for this type of vehicle to help manage liquidity.
However, in response to this news, Caroline Baker, EVP, fund solutions, Americas at Vistra, stated that recent redemption activity is “a reflection of private credit funds operating as intended” and that “redemption limits are a necessary feature of the structures designed to protect long-term investors by preventing managers from having to sell assets at distressed prices during periods of elevated withdrawal activity”.
“What the industry is experiencing is less a liquidity crisis and more the growing pains of an asset class that’s attracting a broader range of investors. As private credit becomes increasingly accessible through evergreen and semi-liquid structures, it’s essential that expectations around liquidity remain aligned with the true nature of the assets,” she said.
“The real focus for managers should now be on transparency, clear communication and investor education.”
Read more: Semi-liquid structures: the double-edged sword
Several of the largest alternative asset managers, including Blue Owl and BlackRock, have faced rising redemption requests as retail investors grow increasingly cautious about the asset class, particularly its exposure to software and the potential implications of AI.
However, Blackstone said redemption requests decelerated in the second half of May, and shares in Blackstone rallied on the back of the announcement. The firm said it believes the surge has been driven by a period of market uncertainty and that there are still opportunities in corporate direct lending.
In a statement sent to investors this week, Blackstone said: “We are entering an investment environment that we believe is especially compelling for corporate direct lending. Following a period of volatility early this year, markets are stabilising, and deal activity is increasing at wider spreads compared to the prior quarter.”
Blackstone said this week that BCRED maintains liquidity of over $15bn, comprising cash and undrawn borrowing capacity. It also said last month that “heightened press and market attention around private credit, as well as concerns about decelerating performance” were behind the rise in redemptions.
The news comes after Partners Group also moved to restrict withdrawals from its $8.6bn Global Value SICAV fund at five per cent earlier this week after redemption requests hit 9.8 per cent, Bloomberg reported.
Read more: Blue Owl fund outlook cut by Moody’s after redemption surge
