Investors are increasingly seeking to withdraw funds from private-credit, with requests reaching $15.6 billion in the second quarter, up from $13.9 billion in the first quarter. However, fund managers only returned $5.9 billion in the second quarter, a decrease from $7.4 billion in the prior period, according to investment bank Robert A. Stanger. This widening gap between redemption requests and actual payouts highlights growing investor unease.
The industry is also facing a significant decline in new fundraising, with May seeing only about $500 million in inflows, the lowest in at least 18 months and a 75% drop from January levels. This fundraising shortfall could limit these funds' lending capacity, potentially impacting stronger borrowers' expansion plans and increasing default risks for weaker companies, particularly those in the software sector facing AI competition. Major firms like Blackstone, which honored all redemption requests in Q1, have since capped withdrawals at 5% to conserve capital, and other large managers like Apollo Global Management, Ares Management, and BlackRock's HPS private-credit unit have also seen increased redemption requests.
While some funds experienced slight relief, such as Blue Owl's largest business-development company seeing requests fall to 19% of shares outstanding (though still high), Oaktree Capital Management bucked the trend with redemption requests dropping to 4.5% of shares from 8.5% in Q1, partly due to rising net asset value and no nonperforming loans.
Regulatory bodies, including the SEC, Treasury, and bank regulators, are stepping up inquiries into the $3 trillion private-credit industry amid these investor concerns. The SEC has even opened enforcement investigations into some private-credit managers, focusing on loan valuation and adherence to disclosure policies. Despite the increased scrutiny and investor withdrawals, some industry executives and bankers, including JPMorgan CEO Jamie Dimon, downplay systemic risk, stating that actual loan losses remain low.
