After pouring billions into private credit, many investors want out
The rush for the exits in private credit is prompting fresh scrutiny of the sector’s less-liquid structures and its rapid expansion into the retail wealth space.
Blackstone has become the latest fund manager to be hit by a surge in requests from investors to withdraw from its flagship private credit strategy.
The asset manager said this week it will meet 100% of redemption requests in its gigantic $82 billion Blackstone Private Credit Fund, or BCRED, after investors sought to pull a record 7.9% of assets from the fund, or about $3.8 billion.
That came after Blue Owl Capital said last month it was ending regular quarterly liquidity payments in its Blue Owl Capital Corporation II fund, a semi-liquid private credit strategy aimed at U.S. retail investors. The private credit specialist will instead switch to periodic payouts funded by asset sales, earnings and other strategic deals.
This spike in redemption requests is now putting the private market industry’s courting of retail investors under closer scrutiny, and bringing the mismatch between non-publicly-traded, higher-yielding illiquid assets and retail-style access into sharper focus.
‘A feature, not a bug’
Blackstone — the world’s biggest alternative investment manager, with $1.27 trillion in assets under management — said it was upping a previously-announced tender offer to 7% of total shares, with the firm and employees offsetting the remaining 0.9%, in order to meet the redemption requests in full.
Blackstone Chief Operating Officer and President Jon Gray acknowledged that the risk of private credit firms failing to meet withdrawals, and potentially gating investors’ money, is “not beneficial in the near term” for the sector.
But speaking with CNBC’s “Squawk On The Street” Tuesday, Gray said individual investors and financial advisors “in most cases do” understand the product.
Blackstone.
“What people sometimes fail to recognize is, they’re designed as semi-liquid products,” Gray said. “The idea that there are caps is really a feature, not a bug of these products. What you’re doing is trading away a bit of liquidity for higher returns. That’s the same trade-off institutional investors have made for a long period of time.”
Shares of publicly traded alternative asset managers — including Blackstone and Blue Owl, as well as KKR, Ares Management and Carlyle Group, among others — have dipped as concerns over multiple pressure points in the sector have spread.
These include late-cycle loan quality, AI-related risks in software portfolios, and fears of further individual blow-ups following the First Brands and Tricolor implosions last year.
Gray said that lowly-leveraged loans which produce a premium for investors are “a pretty good place to be,” adding that he expects they will continue to outperform liquid credit.
The BCRED fund has generated a 9.8% return since inception in its main share class, which indicates that, for now, the challenge remains one of…
Read More: After pouring billions into private credit, many investors want out