By Matt Wirz
Individual investors accelerated their withdrawal requests from once-hot private-credit funds in the second quarter, adding to the squeeze the industry is facing as fundraising slows and money heads for the exit.
So far, investors in four large credit funds, including those managed by Blackstone and BlackRock, have requested to redeem about $12 billion in the second quarter, up from $7.7 billion the previous quarter, according to data from the investment bank Robert A. Stanger & Co. The requests add to pressure on the industry, continuing months of turmoil that executives have tried to calm by arguing investors are overreacting to a few losses and a lot of scary headlines.
Investors will get a clearer picture after Apollo Global Management, Ares Management and Blue Owl Capital tally requests from their shareholders later this month.
Executives in the industry have maintained that private credit is sound.
"I think the town cryers of private-credit doom are going to be disappointed," Blackstone President Jonathan Gray said at a conference this month. No financial crisis is imminent, and while some funds will take losses, investor demand remains strong because returns are higher than in public-debt markets, he said.
The pace of withdrawals did slow down for one fund managed by Oaktree Capital Management, which is owned by Brookfield. Redemption requests in the second quarter fell to about $200 million, or 4.5%, of the fund's shares, down from $400 million, or 8.5%, in the prior quarter.
Elsewhere, the increased pace has contributed to the stocks of private-fund managers underperforming their peers recently. The longer the cash exodus lasts, the higher the risk that funds will be forced to start selling assets. No large fund is close to that tipping point yet, but analysts currently estimate the cash drain could take a year or more to subside.
That also could have knock-on effects on the economy, given the private-credit industry has become an increasingly important lender to American corporations.
"We'd expect these funds to go through one to two years of maxed out redemptions -- it happens in public markets all the time," said Brian Moriarty, a research manager at fund-rating company Morningstar. "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."
For decades, Morningstar has analyzed mutual funds and exchange-traded funds that buy publicly traded stocks and bonds to help individual investors make better picks. The firm started looking at funds that buy hard-to-trade assets like private credit, private equity and real estate in recent years because giant investment firms were increasingly selling them to its customers.
For now, Morningstar is skeptical, warning that high fees and borrowing costs eat into investor returns. Out of 18 "semiliquid" private funds the company has rated, four got a positive rating.
Fund managers needed individual investors because institutions like pensions that have historically invested in their funds were filling up on private assets. But individuals often expect to be able to quickly buy and sell, creating a potential mismatch since the investments in private funds are hard to trade. Fund managers built in a fail-safe, allowing them to limit quarterly withdrawals to 5%.
Private-credit funds called business-development companies, or BDCs, took off, surging to more than $500 billion in assets under management. The funds primarily make high-interest loans to midsize companies with junk credit ratings and distribute income they collect to shareholders via dividends. Individuals started bailing out last fall over worries about defaults and withdrawals picked up in February when fears rose about losses on loans to software companies.
Initially, new investors compensated for the outflows, but now funds are shrinking. New BDC sales amounted to $1.6 billion in April, a 74% drop from a year earlier and the lowest total since May 2023, according to Stanger & Co.
"Outflows could worsen this quarter," analysts at Barclays wrote in a research report last week. "This has caused us to think about longer-term risks to BDCs."
If funds keep having to pay out 5% of their assets quarter after quarter, some might be forced into fire sales or could freeze withdrawals altogether, a process called gating. Analysts are looking to a similar period of investor flight from real-estate funds a few years ago for clues of how the private-credit scare will play out.
A private real-estate fund managed by Starwood Capital effectively gated investors in 2024 after being swamped by redemption requests. A fund managed by Blackstone struggled for years with outflows but never reduced withdrawals to less than 5% 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. "I also want to see them communicating well with investors and the market."
Private-credit funds are viewed as safer for individual investors than private-equity and real estate because the loans they invest in get repaid regularly, creating a steady stream of money to pay out withdrawals.
If funds are forced to start selling loans to meet redemptions, they will likely sell the highest-priced assets first, Morningstar's Moriarty said.
"Then the portfolio gets a little junkier and if you keep doing that pretty soon the portfolio is upside down," he said.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
June 18, 2026 09:00 ET (13:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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