Redemption pressures are escalating in the private credit market. Cliffwater's Corporate Lending Fund received redemption requests for roughly 17% of shares in the second quarter, up from 14% in the first quarter. The fund responded by slashing its withdrawal cap to 5%, down from 7%.
Blackstone's BCRED fund, managing about $79 billion in assets, faced redemption requests of approximately 10%, translating to roughly $4.4 billion. Both funds imposed restrictions leaving investors with pro-rata payouts well below requested amounts.
Withdrawal caps, or “gates,” are the mechanism used when redemption demand outstrips available liquidity. If a fund caps redemptions at 5% but 17% of shareholders want out, everyone gets roughly 29 cents on every dollar requested.
This marks the second consecutive quarter of outsized redemption demand in US non-traded private credit vehicles. Some funds have seen requests as high as 41% in prior periods.
The market reacted swiftly. Shares of major publicly traded private credit managers-Blackstone, Ares, KKR, and Apollo-fell sharply in early June. Similar restrictions were implemented at funds managed by Blue Owl and Partners Group. Blackstone had honored full redemptions in the previous quarter; the shift to caps signals a meaningful change in conditions.
Private credit now manages roughly $1.8 trillion globally. These assets are typically marked to model, not market, meaning the fund manager determines asset values. When economic conditions deteriorate and default risks rise, questions about the accuracy of those marks become pressing.
For retail investors, the 5% quarterly cap means that even if you request full redemption today, it could take multiple quarters to get your money back, assuming conditions don't worsen.