New quarter redemption window, a new wave of panic—the U.S. "private credit crisis" returns

After a brief period of calm, the redemption storm in the US private credit market has returned. As the new quarterly redemption window opens, several leading institutions have disclosed record withdrawal requests. Blackstone, the industry leader, has seen its largest private credit fund once again hit the redemption cap, and the test of confidence in this $1.8 trillion industry is far from over. As Wallstreetcn previously reported, entering June, Cliffwater's $31 billion flagship private credit fund disclosed that investor redemption requests for the second quarter reached 17%, surpassing last quarter's 14%. Partners Group soon announced it would block the exit channel of one of its evergreen private equity funds and indicated it was prepared to implement similar restrictions on other funds, including those in the United States. Shortly after, Blackstone announced on Thursday it would cap BCRED's redemption ratio at 5%, while actual investor redemption requests had reached 10%, setting a new all-time high. This series of events shattered the brief breathing room the market had formed in previous weeks. At the core of market concerns is this: The private credit industry is overly concentrated in software assets, and the disruptive impact of artificial intelligence is putting unprecedented valuation pressure on this sector. Meanwhile, the industry's first genuine credit default cycle is emerging—Fitch data shows that as of the end of April, the official private credit default rate had risen to 6%, the highest since the metric was established. PIMCO's chief investment officer Daniel Ivascyn warned, "The first sustained credit default cycle in years has begun." Redemption Wave Returns: Blackstone Hits Limit Again The first wave of this crisis began on March 2. At that time, Blackstone’s BCRED disclosed its largest ever investor redemption requests; on April 2, Blue Owl Capital announced two of its funds faced massive withdrawal requests of 22% and 41%, forcing a major closure of exit channels. Afterward, the market briefly stabilized. Fund share prices rebounded slightly, and the industry began discussing portfolio optimization. Some voices suggested that concerns over industry risk were exaggerated. However, beginning June 2, the opening of a new redemption window once again shattered this calm. Cliffwater’s flagship fund disclosed a second-quarter redemption request ratio of 17%, further widening from last quarter; Partners Group announced the closure of its evergreen private equity fund’s exit channel, explicitly stating it was prepared for similar actions with other funds, including US market funds. On Thursday, Blackstone announced that BCRED's quarterly redemption cap would remain at 5%, while actual investor redemption requests had reached 10%, the highest since the fund’s inception. This means many investors wishing to exit were once again locked out. Diameter Capital managing partner Scott Goodwin characterized the current situation at the Bloomberg Global Credit Forum as a “prisoner's dilemma” faced by retail investors: “If I don’t redeem and everyone else does, I’ll end up holding only the worst assets.” AlphaValue CEO Pierre-Yves Gauthier was more blunt: “This sickness is spreading.” While Brett Klein, global head of corporate credit at Sculptor Capital, offered a more moderate interpretation at the same forum, suggesting investors were merely “realizing that the double-digit returns of private credit are actually several hundred basis points lower.” Cliffwater CEO Stephen Nesbitt stated in a letter to investors that the fund’s repurchase plan was “designed intentionally to provide shareholders with periodic liquidity that matches the fund’s long-term investment strategy and underlying assets.” It’s worth noting that the non-traded business development companies (BDC) currently facing redemption pressure are only a subset of the overall private credit market, much smaller than the closed-end products issued to institutional investors, which lack redemption mechanisms. Default Rate Hits Record: Credit Cycle May Have Begun Beyond redemption pressure, deeper risks are accumulating. Fitch data shows that as of the end of April, private credit’s official default rate had risen to 6%, the highest level since Fitch began tracking this indicator. PIMCO CIO Daniel Ivascyn warned, “For the first time in years, a sustained credit default cycle has begun,” and pointed out that many restructurings and default events have not yet been publicly reported, causing some key investors to believe industry returns are overestimated, and losses understated. “Much is happening beneath the surface.” JPMorgan CEO Jamie Dimon issued a similar warning last week: “We haven’t had a real credit cycle in a long time because the COVID pandemic only lasted three months. The credit cycle will come, I don’t know when, but I think when it does, its severity will exceed people’s expectations.” In summary, the private credit sector is facing multiple compounding pressures: cyclical recurrence of redemption waves, AI-driven disruption to software asset valuations, default rates rising to historic highs, and a credibility crisis triggered by lack of transparency. As Bloomberg noted, trying to calm investor anxiety in this market “is more like a marathon than a sprint”—this is determined by the inherent nature of long-term lending, and there are no easy answers. With quarterly redemption data from larger funds like Apollo Global Management and Ares Management set to be disclosed in the coming weeks, the market’s stress test will continue. Institutional Funds Still Flowing In, Market Divisions Deepen Despite ongoing redemption pressure on the retail side, fundraising activity in the institutional market has not fully stopped, and industry segmentation is becoming increasingly evident. - French asset management company Eurazeo has raised €3.9 billion (about $4.5 billion) for its latest flagship direct lending fund; - Bridgepoint Group is set to raise around €5 billion for its latest European direct lending fund; - Crescent Capital Group completed its largest fundraise ever, securing over $5.5 billion in committed capital for a direct lending strategy focused on loans to private equity-backed SMEs. According to Bloomberg, Ares Co-President Blair Jacobson said on Thursday, “These underlying funds are delivering the returns we promised investors—high single digit to double-digit yields. As long as this trend continues, we believe wealth management products’ prospects remain bright.” These fundraising activities indicate that, against the backdrop of rising uncertainty in the US market, some institutional investors are turning to Europe in search of relatively stable allocation opportunities. Risk Warning and Disclaimer The market has risks, investment requires caution. This article does not constitute personal investment advice and does not consider the specific investment goals, financial situation, or needs of individual users. Users should determine whether any opinions, views, or conclusions in this article suit their individual circumstances. Investing based on this is at your own risk.