Top Funds Halt Redemptions After 11.6% Withdrawal Requests
The private credit market is confronting a severe liquidity squeeze as several of its largest players have been forced to restrict investor redemptions. Ares Management recently limited withdrawals from its Strategic Income Fund after redemption requests hit 11.6% of its assets. This follows a similar move by Apollo Global Management, which capped withdrawals on its $14.5 billion Apollo Debt Solutions fund at 5% after facing requests for 11.2% of its shares, equivalent to over $1.5 billion.
The trend is systemic across the industry. On March 3, Blackstone's flagship $820 billion private credit fund faced redemption requests for 7.9% of its assets. This was followed by BlackRock restricting withdrawals for its $26 billion HPS corporate loan fund on March 6, and Morgan Stanley and Cliffwater imposing their own limits on March 11. The pressure has been building since at least February 19, when Blue Owl limited redemptions, and was punctuated by a 19% asset writedown by BlackRock on its TCP Capital Corp. on January 26. Underscoring the growing crisis, an Apollo co-president stated on March 16 that some asset valuations in the private markets are "all wrong."
SEC Probe into Egan-Jones Escalates Trust Crisis
Compounding the liquidity crunch, the U.S. Securities and Exchange Commission (SEC) has ignited a deeper crisis of trust by launching an inquiry into Egan-Jones. The regulator is publicly questioning whether the rating agency can "consistently produce credit ratings with integrity." This move shifts the market's focus from withdrawal gates to the fundamental reliability of the risk assessments underpinning the entire private credit ecosystem.
Egan-Jones, though smaller than its main competitors, plays a crucial role in the private credit market, with its ratings heavily used by insurance companies to determine capital requirements. This is not the firm's first encounter with regulators; in 2012, the SEC penalized the company for misrepresentations related to its qualifications for rating asset-backed securities. The current investigation suggests that investors, including major institutions, may be relying on flawed data, potentially underestimating the true risk in their portfolios in a manner reminiscent of the 2008 financial crisis.
