Key Takeaways
- • Redemption requests at several private credit funds are running at 10% to 16% of shares in a single quarter, roughly double or triple the 5% quarterly cap that funds use to limit withdrawals.
- • Morgan Stanley's North Haven Private Income Fund received redemption requests for 11.4% of shares in the third quarter, versus 11.6% the prior quarter, according to the article.
- • Blue Owl Capital's tech-focused OTIC fund saw requests for nearly 39% of shares, about eight times its cap, which Blue Owl attributes to negative sentiment rather than fundamentals.
- • Critics argue that loan valuations, payment-in-kind (PIK) income, and retail distribution of quarterly-liquidity products create a mismatch between investor expectations and the illiquid assets underneath.
- • Fund executives counter that private credit is long-term capital that can tolerate periodic withdrawal delays, and that PIK and non-accrual metrics should not be conflated with redemption pressure.
Summary
Private credit funds are facing a test of their liquidity structures as investor withdrawal requests exceed what the vehicles are designed to pay out. Because they lend to companies through multi-year loans that cannot be sold quickly, managers typically cap quarterly withdrawals at 5%. According to the article, investors are now asking to pull 10% to 16% of some funds in a single quarter, driven by concerns about rising defaults, slower deal activity, and how managers value loans that do not trade.
At Morgan Stanley, investors in the North Haven Private Income Fund sought to redeem 11.4% of shares in the third quarter, little changed from 11.6% in the prior quarter. Requests at Blackstone's flagship Blackstone Private Credit Fund (BCRED) reached roughly 10%, while Cliffwater LLC's flagship fund saw requests of about 16%. Each of these funds capped repurchases at 5%. At Blue Owl Capital's tech-focused OTIC fund, requests have reached nearly 39% of shares, amid concerns that AI could erode the value of software companies it lends to. Blue Owl co-CEO Marc Lipschultz described the environment as "a headline-driven, not fundamental-driven, redemption environment" on the firm's April earnings call, a characterization critics dispute.
The article highlights concerns about retail exposure. Lakshmi Ganapathi, founder of Unicus Research, argued that everyday investors are being sold quarterly exits on an asset that does not trade, and she compared the dynamic of new money paying earlier redemptions to Japan's "extend and pretend" of the 1990s. Federico Basile, founder and managing partner of Capital-Hill Securities, said a quarterly cap on five-year private loans "is an acknowledgment that the asset has none" of liquidity.
Fund executives and wealth managers maintain that clients can wait out the cycle. Tarek Omar, CEO and partner at Royce Stone Capital, said a repurchase window does not change loan economics and described the 5% cap as a shared limit rather than an individual allowance. Valuation is a central concern: if loans are marked too high, investors who exit first receive more than their share of value, leaving remaining investors to cover the difference. Kimberly Flynn, president of XA Investments, said rigor among third-party valuation firms varies widely and flagged growing use of payment-in-kind income, which she said has implications for valuation. Omar cautioned against equating PIK and non-accrual trends with redemption pressure, noting that some funds, including BCRED, reported lower PIK shares and non-accrual measures.
On regulation, Ganapathi argued that enforcement lags regulation and questioned whether retail buyers were adequately briefed on risks. She predicted that redemption pressure would build in 2027. Omar noted that deterioration in collateral can reduce how much a fund may borrow, limiting the cash available for withdrawals.
At Morgan Stanley, investors in the North Haven Private Income Fund sought to redeem 11.4% of shares in the third quarter, little changed from 11.6% in the prior quarter. Requests at Blackstone's flagship Blackstone Private Credit Fund (BCRED) reached roughly 10%, while Cliffwater LLC's flagship fund saw requests of about 16%. Each of these funds capped repurchases at 5%. At Blue Owl Capital's tech-focused OTIC fund, requests have reached nearly 39% of shares, amid concerns that AI could erode the value of software companies it lends to. Blue Owl co-CEO Marc Lipschultz described the environment as "a headline-driven, not fundamental-driven, redemption environment" on the firm's April earnings call, a characterization critics dispute.
The article highlights concerns about retail exposure. Lakshmi Ganapathi, founder of Unicus Research, argued that everyday investors are being sold quarterly exits on an asset that does not trade, and she compared the dynamic of new money paying earlier redemptions to Japan's "extend and pretend" of the 1990s. Federico Basile, founder and managing partner of Capital-Hill Securities, said a quarterly cap on five-year private loans "is an acknowledgment that the asset has none" of liquidity.
Fund executives and wealth managers maintain that clients can wait out the cycle. Tarek Omar, CEO and partner at Royce Stone Capital, said a repurchase window does not change loan economics and described the 5% cap as a shared limit rather than an individual allowance. Valuation is a central concern: if loans are marked too high, investors who exit first receive more than their share of value, leaving remaining investors to cover the difference. Kimberly Flynn, president of XA Investments, said rigor among third-party valuation firms varies widely and flagged growing use of payment-in-kind income, which she said has implications for valuation. Omar cautioned against equating PIK and non-accrual trends with redemption pressure, noting that some funds, including BCRED, reported lower PIK shares and non-accrual measures.
On regulation, Ganapathi argued that enforcement lags regulation and questioned whether retail buyers were adequately briefed on risks. She predicted that redemption pressure would build in 2027. Omar noted that deterioration in collateral can reduce how much a fund may borrow, limiting the cash available for withdrawals.
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