The rush to exit private credit is prompting new scrutiny of the sector’s illiquid structure and rapid expansion into the retail wealth space.
black stone has become the latest fund manager to be hit by a surge in requests from investors to exit its flagship private credit strategy.
The asset manager announced this week that it would meet 100% of redemption requests for the massive $82 billion Blackstone Private Credit Fund (BCRED) after investors withdrew a record 7.9% of assets from the fund, or about $3.8 billion.
it came after that blue owl capital announced last month that it would end regular quarterly liquidity payments in its Blue Owl Capital Corporation II Fund, a semi-liquid private credit strategy targeting retail investors in the United States. Private credit professionals will instead switch to regular payments funded by asset sales, proceeds or other strategic transactions.
This surge in redemption claims has now placed the private markets industry’s outreach to retail investors under increased scrutiny, bringing the mismatch between privately traded high-yield illiquid assets and retail-style access into sharper focus.
“It’s a feature, not a bug.”
Blackstone, the world’s largest alternative investment manager with $1.27 trillion in assets, announced that in order to fully satisfy redemption claims, it would increase its previously announced tender offer to 7% of its total shares, with the remaining 0.9% to be offset by the company and its employees.
John Gray, Blackstone’s chief operating officer and president, acknowledged that the risk that private credit companies might not be able to handle withdrawals, potentially limiting investors’ funds, is “not beneficial in the short term” to the industry.
But Gray told CNBC’s “Squawk on the Street” Tuesday that individual investors and financial advisors “for the most part” understand the product.
black stone.
“What people sometimes don’t realize is that they are designed as semi-liquid products,” Gray says. “The idea that there is a cap is actually a feature, not a bug in these products. What you’re doing is trading off a little bit of liquidity for a higher return, which is the same tradeoff that institutional investors have been making for a long time.”
Stocks of listed alternative asset managers such as Blackstone and Blue Owl KKR, ares management and carlyle groupamong other things, fell due to widespread concerns over multiple pressure points within the sector.
These include late-cycle loan quality, AI-related risks in software portfolios, and concerns about a further personal explosion following last year’s First Brand and Tricolor implosion.
Low-leverage loans that generate a premium for investors are a “very good place to be,” Gray said, adding that they will continue to outperform liquidity credits.
The BCRED fund has returned 9.8% since inception across its major share classes. This suggests that liquidity is more of an issue than performance at the moment. Mr Gray said there had been a “huge amount of noise” over private credit in recent weeks, adding: “It’s no surprise that investors are nervous.”
Moody’s Ratings warned that the difficult balance between private credit providing retail-like liquidity while delivering strong returns will continue to be tested as the private credit sector evolves towards the mainstream. Mark Pinto, global head of private credit at Moody’s, said in recent comments that a growing retail presence may require funds to hold more of more liquid, lower-yielding assets, which could weigh on returns.
“180 degree switch”
William Barrett, managing partner at Reach Capital, said that regardless of the fund’s structure, ultimately the underlying assets will remain illiquid. “Retail markets should recognize that and not invest in these products in the same way they would invest in ETFs,” Barrett told CNBC in an email.
“The flow of capital into the private market has been dominated by the institutional market for decades,” Barrett said. “It makes sense for our industry to offer products to retailers, but instead of pivoting 180 degrees to mass retailers, we should test it first with HNWIs and high-net-worth individuals.”
Barrett said the industry needs to carefully select the right target market with the right liquidity structure and the right underlying assets.
He noted that while there is little sign of underperformance in credit at the portfolio level, “it makes sense that semi-liquid products would be the first to feel liquidity pressure.”
Blue Owl Capital.
men groupThe London-listed global alternatives manager, which has expanded its private credit activity in recent years, said private credit loans are originated with the “clear purpose” of holding them to maturity.
“This lack of tradability is a feature of this asset class, not a flaw,” Andrew Wayman, director and client portfolio manager, U.S. Private Credit, and Zeshan Ashfaq, senior managing director and senior credit officer, U.S. Direct Lending, said in a note Tuesday.
They said redemption pressures in private credit could also be affected by another weakness: exposure to software-as-a-service companies. Blue Owl is a key direct lender to a sector reeling from concerns that rapidly advancing AI tools could erode traditional SaaS business models.
“If retail inflows slow and outflows accelerate, this will create further headwinds for the industry, especially for those operators most exposed to AI risks and those whose capital bases have a strong retail component,” Weyman and Ashfaq wrote.
