Private credit, one of the fastest-growing corners of global finance, is facing its sharpest test in years as investors pulled more than $7bn from some of Wall Street’s largest funds in the final months of last year. The withdrawals, reported by the Financial Times based on regulatory filings and interviews with industry executives, reflect mounting anxiety about credit quality following the bankruptcies of consumer goods group First Brands and subprime auto lender Tricolor.
Funds managed by Apollo Global Management, Ares Management, Barings, Blackstone, BlackRock’s HPS Investment Partners, Blue Owl, Cliffwater and Oaktree all recorded an increase in redemption requests, according to Securities and Exchange Commission disclosures and people familiar with the matter. Redemptions were running at roughly 5 per cent of the value of the funds’ investment portfolios, net of debt, based on Financial Times calculations, with executives warning that the final figure is likely to rise further as additional data is reported.
“Redemptions are up across the board,” one senior private credit executive told the Financial Times, capturing the growing sense of unease among investors who until recently had poured money into the $2.3tn industry in search of higher yields. While First Brands and Tricolor were largely financed through bank-arranged loans and asset-backed securities, their collapses have nonetheless tarnished sentiment towards private credit more broadly, raising fears that other weaknesses could be lurking beneath the surface.
Those concerns have been amplified by comments from JPMorgan Chase chief executive Jamie Dimon, who last year warned that “when you see one cockroach, there are probably more” in the wake of Tricolor’s failure. The remark has become a touchstone for investor scepticism, reinforcing worries that defaults could spread as borrowing costs remain elevated and economic growth slows. “I think there is a lot of fear in the air and time will tell if those fears are well founded,” said Philip Hasbrouck, co-head of asset management at Cliffwater.
Industry executives also point to Blue Owl’s decision to abandon a proposed merger of two of its funds, which would have crystallised losses for investors in one vehicle, as another factor that unsettled the market. “The stories in October in particular around First Brands and Tricolor were headline grabbing,” another senior private credit executive said, noting how quickly confidence can erode in a sector built on perceptions of stability and steady income.
The pullback comes against a backdrop of shifting monetary policy expectations. Investor enthusiasm for private credit had already begun to cool last year after the Federal Reserve signalled that it would start cutting interest rates, reducing the appeal of floating-rate loans that dominate many private credit portfolios. Several major funds responded by trimming dividends, reinforcing concerns that the best days of easy returns may be fading. “There is clearly a reduced amount of demand for floating rate credit strategies given this broader theme around lower rates,” the executive added.
Withdrawals have been concentrated in non-traded business development companies and interval funds, which have become the main access point to private credit for retail and high-net-worth investors. Despite the uptick in redemptions, most managers have continued to honour withdrawal requests, even when they exceeded quarterly limits that typically allow funds to cap redemptions at around 5 per cent.
Blackstone’s flagship $79bn private credit fund, the largest in the industry, received $2.1bn of redemption requests in the fourth quarter, equivalent to about 4.5 per cent of the fund, up from 1.8 per cent in the previous quarter. Ares reported just under $600mn of withdrawals from its $23bn strategic income fund, or 5.6 per cent of net asset value. BlackRock’s $25bn HPS Corporate Lending Fund said redemptions rose to 4.1 per cent from 1.6 per cent, amounting to roughly $475mn.
At Blue Owl, investors sought to redeem 5 per cent of shares from its $34bn OCIC fund, according to a person briefed on the matter. Redemptions from the firm’s technology-focused fund surged to around 15 per cent from 2.6 per cent, prompting the firm to raise its redemption cap to 19.3 per cent to allow investors to exit. The contrasting experiences within the same firm have underscored how quickly sentiment can shift within specific strategies.
So far, however, analysts say the industry has avoided a liquidity crunch. According to Barclays, many of the largest private credit managers, including Apollo, Ares, Blackstone, BlackRock, Barings and Oaktree, are still attracting more new capital than they are paying out in redemptions. That has reduced the need to sell assets or draw heavily on liquidity reserves, with most funds retaining access to bank credit lines and holding portfolios of relatively liquid loans.
Peter Troisi, an analyst at Barclays, said inflows into business development companies have nonetheless slowed sharply since August, with December inflows down 26 per cent from the previous month among the funds that have reported. The slowdown suggests that while investors are not rushing for the exits en masse, their appetite for committing fresh capital has weakened.
Fund managers argue that meeting redemption requests is crucial to maintaining trust and distinguishing private credit from other alternative assets, particularly real estate, which was hit hard by rate hikes in 2022 and saw several high-profile funds impose withdrawal limits. Investors are now watching closely for signs of genuine distress, especially a rise in defaults on private credit loans. For the moment, analysts say credit quality remains broadly stable.
Blue Owl said performance at its technology fund remained strong, with leverage below target and substantial liquidity in place. Ares told investors in December that its portfolio remained healthy and pledged to maintain its dividend through June, while Blackstone said investors continued to recognise the premium private credit can offer over public fixed income. Cliffwater’s Hasbrouck struck a note of cautious optimism, saying the firm was not worried about its ability to perform and expected conditions to improve quarter by quarter. BlackRock and Oaktree declined to comment.
