Trapped in Private Credit, Investors Wait to Pull Out $5 Billion

Video Description

A wave of redemption requests across the private credit industry has left more than $4.6 billion of investor capital trapped behind withdrawal limits, with more asset managers expected to impose curbs in the coming weeks. Investors have looked to pull roughly $13 billion from over a dozen funds so far this quarter, according to Bloomberg estimates and data from Robert A Stanger & Co. But since the vehicles can cap withdrawals at 5% of net assets per quarter, investors have only been able to access about two-thirds of the cash they’ve sought, the data show. Len Tannenbaum, Founder of Tannenbaum Capital Group, joins Bloomberg Businessweek Daily to discuss redemption jitters, the evolution of private credit and the current credit cycle, and more. He speaks with Carol Massar and Tim Stenovec. Leaders of the world’s biggest money managers are pouring energy into defense of private capital markets, pointing fingers at advisers for failing unwitting investors and at industry foes who they say are manufacturing crisis where none exists.  Doug Ostrover, co-chief executive officer atBlue Owl Capital, said distribution teams targeting retail and high-net-worth clients “could have done a better job” at explaining the liquidity characteristics of private credit. “Between us, and the advisers who sell our products, I don’t think we made it clear enough,” he told the Asia Pacific Financial and Innovation Symposium on Thursday. Ostrover’s comments reflect increasing frustrations in an industry bracing for fresh redemptions from stricken business development companies and costly markdowns on billions of dollars of software investment bets upended by AI. Investors have looked to pull roughly $13 billion from over a dozen funds so far this quarter, according to Bloomberg estimates and data from Robert A Stanger & Co., but more than $4.6 billion of investor capital lies trapped behind withdrawal limits. “The conventional wisdom is that the current stress in private credit demonstrates that it is ill-suited to retail investors because it is too risky, too illiquid and too opaque,” Finley wrote. “With private credit critics referencing a canary in the coal mine or a private credit powder keg, we are in the midst of a hyperbolic cliché festival.” While some executives blame industry outsiders for fanning investor fears, warnings from Wall Street are getting louder. - George Hines, the founder of a chain of music stores, invested in private credit funds for the juicy yields. These funds pay out much more income than a plain-vanilla bond investment—often about 9% a year. The catch is that they hold privately arranged loans that could be hard to sell in a hurry, so investors have to accept limits on when they can redeem them and for how much. Late last year, investors started getting nervous about private credit, and Hines, 70, was one of them. He was able to take more than $1 million out of one of Blue Owl Capital Inc.’s direct lending funds, Blue Owl Credit Income Corp., in December. But other Blue Owl investors haven’t been as lucky. The asset manager has restricted withdrawals from another fund, Blue Owl Capital Corp. II, or OBDC II, after being hit with a wave of redemption requests. Hines, who heads a Florida branch of Tiger 21, a club for high-net worth investors, has started to question whether credit funds are worth the liquidity risk. “It doesn't seem to be a problem yet, but that doesn't mean it won't become a real problem soon," he says. He’s working with his financial adviser to redeem from a handful of other funds. In recent years, asset managers who specialize in once-niche private markets have been chasing affluent investors such as Hines. They’ve been hosting fancy dinners and continuing education classes for financial advisers, and even sponsoring professional athletes to raise awareness of their brands. About $1.8 trillion is in private credit, but much of it is held by pensions, insurers and other institutions. Money managers have regarded individuals and even retirement funds as the next big source of assets and fees. -------- Watch Bloomberg Radio LIVE on YouTube Weekdays 7am-6pm ET WATCH HERE: http://bit.ly/3vTiACF Follow us on X: https://twitter.com/BloombergRadio Subscribe to our Podcasts: Bloomberg Daybreak: http://bit.ly/3DWYoAN Bloomberg Surveillance: http://bit.ly/3OPtReI Bloomberg Intelligence: http://bit.ly/3YrBfOi Balance of Power: http://bit.ly/3OO8eLC Bloomberg Businessweek: http://bit.ly/3IPl60i Listen on Apple CarPlay and Android Auto with the Bloomberg Business app: Apple CarPlay: https://apple.co/486mghI Android Auto: https://bit.ly/49benZy Visit our YouTube channels: Bloomberg Podcasts: https://www.youtube.com/bloombergpodcasts Bloomberg Television: https://www.youtube.com/@markets Bloomberg Originals: https://www.youtube.com/bloomberg Quicktake: https://www.youtube.com/@BloombergQuicktake