ARES MANAGEMENT`S FLAGSHIP PRIVATE CREDIT FUND HIT BY 14% WITHDRAWAL REQUESTS / THE FINANCIAL TIMES

Ares Management’s flagship private credit fund hit by 14% withdrawal requests

Firm caps redemptions as retail investor exodus accelerates across the industry

Eric Platt in New York

Ares signalled the outflows came predominantly from investors outside of the US © Bloomberg

Investors attempted to pull more than $1.5bn from one of Ares Management’s flagship private credit funds in the second quarter, as wealthy individuals take flight from the $2tn asset class.

The firm’s nearly $11bn Ares Strategic Income Fund said it had received redemption requests worth 14.4 per cent of the vehicle, up from 11.6 per cent in the first quarter.

The fund, which manages an investment portfolio worth roughly $22bn, honoured just over a third of the withdrawal requests, capping redemptions at a 5 per cent limit built into the vehicle.

Ares signalled the outflows came predominantly from investors outside of the US, pointing to “a limited number of smaller, primarily non-US institutions and family offices” that sought to exit the fund. 

It is a point other investment groups including Apollo have made as redemptions have swelled over the past nine months.

“We have made this decision, as with all capital allocation decisions, aligned with what we believe are the best interests of the fund and all of our stakeholders, including the significant majority of shareholders who remain invested as well as our lenders and bondholders,” Ares wrote in a letter to shareholders.

The vehicle has returned 8.2 per cent over the past year.

Morgan Stanley on Tuesday said it would continue to gate its North Haven Private Income Fund as redemption requests rose to 11.6 per cent. 

Earlier in the week, Apollo Global disclosed that withdrawal requests from one of its funds had swelled to nearly 17 per cent.

The rapid retreat from the retail-focused vehicles, known as business development companies, poses a challenge to the private investment industry, which over the past decade has courted smaller investors as a significant source of growth.

The industry has relied on so-called semi-liquid funds as a large part of their push, offering vehicles that give retail investors access to assets that rarely or never trade with quarterly opportunities for liquidity.

Those funds are now showing the limits to that liquidity, as redemption requests eclipse promised thresholds, typically 5 per cent of the net value of a fund in any quarter.

Private credit funds tracked by the FT are facing redemption requests in excess of $17bn in the second quarter, based on filings from more than a dozen vehicles. 

So far the industry has honoured about a third of requests, pointing to a long queue of investors who are unable to exit.

Executives in the industry say outflows from BDCs represent only a small portion of activity in private debt markets and that restrictions have largely limited the need for money managers to sell illiquid assets at fire-sale prices.

BDCs managed investment portfolios worth about $570bn at the end of last year, compared to the nearly $1.8tn in closed-end funds pitched to institutional investors, data from BDC Collateral and Preqin showed.

But the industry will be tested if outflows persist and new commitments remain anaemic, private credit investors say.

Ares shares are down about 30 per cent this year, compared to a 7.5 per cent advance by the benchmark S&P 500.