Home Private Credit Private Credit’s Exit Problem
Author: Anthony Noto | Photos: Shutterstock
Investors were promised regular quarterly liquidity. Now, strict redemption caps leave capital trapped.
Private credit funds are reckoning with an uncomfortable truth: More investors want out than the funds are built to let leave.
Companies receive multi-year loans that can’t be sold quickly. That’s why lenders cap withdrawals at 5% a quarter. However, that safeguard is now being tested. Investors are asking to pull 10% to 16% of some funds in a single quarter, pushed out by worries about rising defaults , less deal activity and concerns over how managers value loans that never trade.
Each gated fund feeds the anxiety, and the line to get out isn’t getting much shorter.
At Morgan Stanley, the pressure isn’t letting up. Investors in the bank’s North Haven Private Income Fund sought to redeem 11.4% of shares in the third quarter, little changed from 11.6% the prior quarter . And it’s not alone. Requests at Blackstone Inc.’s flagship Blackstone Private Credit Fund, known as BCRED, reached roughly 10%. At Cliffwater LLC’s flagship fund, they hit about 16%. Each fund capped repurchases at 5%.
These products were sold on periodic liquidity. They’re now hearing investors say: I want my money back.
“It works until it doesn’t, and it stops working precisely when investors most want out,” said Federico Basile, founder and managing partner of Capital-Hill Securities, a Luxembourg securitization issuer. “A quarterly cap on a portfolio of five-year private loans is not a liquidity feature. It is an acknowledgment that the asset has none.”
At Blue Owl Capital’s tech-focused fund, OTIC, requests have held nearly 39% of shares, nearly eight times the cap, amid concerns that AI could erode the software companies it lends to. Blue Owl has attributed the outflows to negative sentiment.
Blue Owl has called it “a headline-driven, not fundamental-driven, redemption environment,” according to co-CEO Marc Lipschultz on the firm’s April earnings call . His critics disagree.
Lakshmi Ganapathi, founder of Unicus Research in Ridgefield, Connecticut, says everyday investors are walking into a mismatch they are poorly equipped to handle.
“Retail investors should not be anywhere close to anything that has to do with the private credit,” Ganapathi told Global Finance on a call. They are being sold quarterly exits, she said, on “an asset that does not trade.”
Big names and “trigger words” in sales material hold a lot of sway, she argued. So when Blackstone tells potential customers (as it did in March ) that today’s market “looks nothing like 2008,” a retail investor may conclude the worries are so-called “fake news.”
She also pointed to risks she says no one can easily trace and likened the dynamic of new investors paying off earlier redemptions to Japan’s “extend and pretend” in the 1990s.
“You have this ‘Hyman Minsky’s Panzai Finance’ coming in— new money to pay off the old money.”
In some cases, she explained, loan books run through multiple nested shell companies and the system is “so intertwined worldwide that nobody knows where anything ends. That should scare people.”
Wealth managers maintain that their clients have the patience to wait out the cycle—a point echoed by fund executives.
Tarek Omar, CEO and partner at Royce Stone Capital, a Melbourne-based private credit and investment firm, sai…