Redemption wave hits: Goldman barely holds the line, Barings forced to cap, private credit liquidity pressures emerge

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The private credit market is experiencing a noticeable loosening of funds.

Under multiple pressures such as high interest rates, concerns over credit quality, and expectations of AI disruption, investors are accelerating their withdrawal from this once-hot asset class. Although some leading institutions are barely holding the redemption line, more and more funds have had to restrict withdrawals, and the industry’s liquidity pressure is quickly emerging.

Goldman Sachs: Barely Holding the Redemption Line

According to a document released Monday, the $15.7 billion Goldman Sachs Private Credit Corp. (a so-called unlisted Business Development Company) fulfilled redemption requests equivalent to 4.999% of its outstanding shares in the first quarter, just avoiding the widespread run that forced some peers to restrict redemptions. By contrast, peers such as Blue Owl Capital saw redemption applications far above the industry’s widely set 5% cap.

However, this redemption rate is still higher than the 3.5% in the fourth quarter of last year.

Private credit funds aimed at retail investors have seen a marked drop in demand since the start of the year, with many investors trying to exit their positions. Many fund managers have opted to restrict redemptions, and currently more than $8 billion in funds are “trapped” in these products.

The fund stated in a letter to shareholders:

“Among comparable unlisted BDCs, we are the only fund with redemption requests below the standard 5% quarterly cap.”

Driven by about $1.04 billion in subscription funds, the fund saw net inflows for the quarter, while Goldman Sachs said many competitors experienced net outflows.

The fund noted that it relies more on institutional funds than retail investors. In the current market environment, retail investors are leaving on a large scale, driven by concerns over lending standards and exposure to companies that may be affected by artificial intelligence.

The fund manager wrote:

“To be clear, we are in the same market environment as other unlisted BDCs and, of course, cannot completely avoid overall industry changes.”

“We still believe structural factors are more important: by maintaining an institutionally-driven private credit platform, we achieve strategic diversification of funding sources. This means we can be more patient, deploy investments at our own pace, and — combined with our deal sourcing system — gain a competitive advantage throughout the credit cycle.”

The documents show that as of the end of February, the fund’s year-to-date return was 0.4%, far below the 1.3% in the same period last year. Performance across the industry has generally declined; for example, one of Ares Management’s funds recorded a 0.68% loss in February, its largest monthly drop since its founding in 2022.

Goldman Sachs also said that the decrease in funds flowing into the asset class has brought some benefits, including wider spreads and better terms, “because lenders dependent on traditional retail inflows have started to scale down operations.”

Barings Private Credit: Redemption Pressure Surges, Forced to Limit Withdrawals

A $4.9 billion Barings private credit fund set limits on its redemption ratio in the first quarter after investors requested redemption of as much as 11.3% of the fund.

According to media reports and a document released Monday, Barings Private Credit Corp. paid less than half of redemption requests, restricting redemptions to 5%. This means the fund retained about $180 million that investors had originally demanded to redeem.

The fund stated in a letter to shareholders:

“We strive to responsibly manage capital for both exiting and continuing investors, while meeting short-term liquidity demands.”

One of the fund’s largest holders is Cliffwater LLC, whose $33 billion interval fund is the largest product of its kind. In the first quarter this year, investors requested to redeem 14% of funds from Cliffwater’s flagship fund, but were ultimately restricted to 7%.

Barings said setting the redemption ratio at 5% helps it seize investment opportunities brought by market volatility.

Barings also stated that despite redemptions, its portfolio’s credit quality remains “strong.” So-called “non-accrual loans” (loans that are no longer generating interest income) accounted for 0.4% of the portfolio as of the end of December last year, lower than the industry’s historical average of 0.9%.

The fund also noted its annualized return since it began investing in 2021 has been 10.6%.

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