Key Takeaways
- • Morgan Stanley's North Haven Private Income Fund saw redemption requests of 11.4% of shares in Q3, barely changed from 11.6% the prior quarter, against a standard 5% quarterly repurchase cap.
- • Blue Owl Capital's tech-focused OTIC fund faced redemption requests of nearly 39% of shares, roughly eight times its repurchase limit, which Blue Owl attributed to headline-driven sentiment rather than fundamentals.
- • Blackstone's BCRED saw requests of roughly 10% and Cliffwater's flagship fund about 16%, with each fund capping repurchases at 5%.
- • Industry commentators warn that quarterly liquidity promises on multi-year illiquid loan books create a structural mismatch, particularly for retail investors, and that loan valuation rigor and PIK income are emerging concerns.
Summary
Redemption requests at several flagship private credit funds have risen to between 10% and 16% of shares in a single quarter, well above the 5% quarterly repurchase cap that most such funds enforce. The pressure reflects investor concern over rising defaults, reduced deal activity and uncertainty about how managers price loans that do not trade on open markets, according to the report.
At Morgan Stanley, investors in the North Haven Private Income Fund sought to redeem 11.4% of shares in the third quarter, barely changed from 11.6% the prior quarter. Blackstone's flagship Blackstone Private Credit Fund (BCRED) saw requests of roughly 10%, while Cliffwater's flagship fund saw about 16%. Each capped repurchases at 5%. At Blue Owl Capital's tech-focused OTIC fund, requests have held near 39% of shares, amid concerns that artificial intelligence could erode the software companies the fund lends to. Blue Owl attributed the outflows to negative sentiment; co-CEO Marc Lipschultz described the environment on the firm's April earnings call as headline-driven rather than fundamental-driven.
Federico Basile, founder and managing partner of Capital-Hill Securities, a Luxembourg securitisation issuer, argued that a quarterly cap on a portfolio of five-year private loans reflects an acknowledgment that the asset has no liquidity. Lakshmi Ganapathi, founder of Unicus Research, said retail investors are being sold quarterly exits on assets that do not trade, and expected the redemption wave to pick up speed in 2027.
Valuation is a related concern. If a fund marks loans too high, early redeemers collect more than their proportionate share, leaving remaining investors to absorb the difference. Kimberly Flynn, president of XA Investments, said rigor among third-party valuation firms varies widely and flagged growing payment-in-kind (PIK) income, where borrowers pay interest with additional debt, as a concern for valuation. Tarek Omar, CEO and partner at Royce Stone Capital, cautioned against treating PIK income and redemption pressure as interchangeable signals of loan quality, while acknowledging that deteriorating collateral would reduce a fund's capacity to meet withdrawals.
On regulation, Ganapathi questioned whether existing rules translate into effective enforcement and noted that banks lending to private credit funds have limited visibility into their exposures. Omar stressed that the 5% quarterly cap is shared across all investors in a fund rather than being an individual allowance, and that investors must decide how long they can leave capital committed.
At Morgan Stanley, investors in the North Haven Private Income Fund sought to redeem 11.4% of shares in the third quarter, barely changed from 11.6% the prior quarter. Blackstone's flagship Blackstone Private Credit Fund (BCRED) saw requests of roughly 10%, while Cliffwater's flagship fund saw about 16%. Each capped repurchases at 5%. At Blue Owl Capital's tech-focused OTIC fund, requests have held near 39% of shares, amid concerns that artificial intelligence could erode the software companies the fund lends to. Blue Owl attributed the outflows to negative sentiment; co-CEO Marc Lipschultz described the environment on the firm's April earnings call as headline-driven rather than fundamental-driven.
Federico Basile, founder and managing partner of Capital-Hill Securities, a Luxembourg securitisation issuer, argued that a quarterly cap on a portfolio of five-year private loans reflects an acknowledgment that the asset has no liquidity. Lakshmi Ganapathi, founder of Unicus Research, said retail investors are being sold quarterly exits on assets that do not trade, and expected the redemption wave to pick up speed in 2027.
Valuation is a related concern. If a fund marks loans too high, early redeemers collect more than their proportionate share, leaving remaining investors to absorb the difference. Kimberly Flynn, president of XA Investments, said rigor among third-party valuation firms varies widely and flagged growing payment-in-kind (PIK) income, where borrowers pay interest with additional debt, as a concern for valuation. Tarek Omar, CEO and partner at Royce Stone Capital, cautioned against treating PIK income and redemption pressure as interchangeable signals of loan quality, while acknowledging that deteriorating collateral would reduce a fund's capacity to meet withdrawals.
On regulation, Ganapathi questioned whether existing rules translate into effective enforcement and noted that banks lending to private credit funds have limited visibility into their exposures. Omar stressed that the 5% quarterly cap is shared across all investors in a fund rather than being an individual allowance, and that investors must decide how long they can leave capital committed.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.