Private credit redemptions hit $12B as individual investors flee funds

Individual investors requested to redeem about $12 billion from four large private-credit funds in the second quarter, up from $7.7 billion in the prior period, as concerns over credit quality and lower returns drove a sustained cash exodus.

"The question isn't whether you will get an extended redemption cycle — it's going to happen and the question is can you handle it," said Brian Moriarty, a research manager at Morningstar.

The $12 billion in requests across funds managed by Blackstone, BlackRock and Oaktree Capital Management marked a 56% increase from the first quarter, according to data from investment bank Robert A. Stanger & Co. New sales of business-development companies, the primary vehicle for individual investors to access private credit, plunged 74% from a year earlier to $1.6 billion in April, the lowest monthly total since May 2023.

The accelerating outflows threaten to force fund managers into selling assets to raise cash, potentially degrading portfolio quality and squeezing returns for remaining investors. With the private credit industry holding roughly $2 trillion in assets and serving as a key lender to midsize American companies, a prolonged redemption cycle could have broader economic consequences.

BlackRock's HPS Fund Feels the Pressure

BlackRock's $13 billion HPS Corporate Lending Fund limited withdrawals for a second consecutive quarter after investors sought to redeem roughly $1.6 billion, up from $1.2 billion in the prior period. The fund honored only about 5 percent of net assets — approximately $620 million — well below total demand. BlackRock acquired HPS Investment Partners last year for $12 billion, and the fund's broader leveraged loan portfolio has grown to nearly $25 billion.

BlackRock said the fund's 5 percent quarterly withdrawal mechanism is consistent with its stated framework and designed to match investor liquidity with the longer-term nature of private credit assets. HPS said it expects incoming capital commitments to help offset outflows over time.

Oaktree Shows a Divergent Path

Oaktree Capital Management, owned by Brookfield, saw redemption requests fall to about $200 million, or 4.5 percent of its fund's shares, in the second quarter, down from $400 million, or 8.5 percent, in the prior period. The improvement suggests that some funds may be able to stabilize outflows if they can demonstrate portfolio resilience.

The broader industry faces a more uncertain outlook. Barclays analysts warned in a research report last week that outflows could worsen this quarter, raising longer-term risks for BDCs. The last time the BDC market faced a comparable slowdown in new issuance was in 2023, when the Federal Reserve's rate hiking cycle compressed spreads and dampened investor appetite. That episode lasted roughly six months before activity rebounded.

What Happens If Outflows Persist

If funds keep paying out 5 percent of assets quarter after quarter, some could be forced into fire sales of loans or freeze withdrawals entirely — a process known as gating. A private real-estate fund managed by Starwood Capital effectively gated investors in 2024 after being swamped by redemption requests. A Blackstone real-estate fund struggled with outflows for years but never reduced withdrawals below 5 percent and eventually stabilized.

Responsible fund managers will need to use debt and opportunistic asset sales to raise cash for redemptions, because too much of either option can damage returns, said Rasmus Goksor, chief executive of Sekond, a private-fund data provider to financial advisers.

Blackstone President Jonathan Gray dismissed broader concerns at a conference this month, saying "the town cryers of private-credit doom are going to be disappointed." He argued that no financial crisis is imminent and that investor demand remains strong because returns are higher than in public-debt markets.

This article is for informational purposes only and does not constitute investment advice.