Author：Wall Street CN

The private lending market is showing clear signs of easing in funding.

Under the multiple pressures of high interest rates, concerns about credit quality, and the anticipated impact of AI, investors are accelerating their withdrawal from this once-hot asset class. Although some leading institutions are still barely managing to maintain their redemption limits, an increasing number of funds have been forced to restrict withdrawals, and liquidity pressures in the industry are rapidly emerging.

Goldman Sachs: Narrowly defended the redemption redemption line

According to a filing on Monday, Goldman Sachs Private Credit Corp., a privately held business development company with $15.7 billion in assets, met redemption requests equivalent to 4.999% of its outstanding shares in the first quarter, narrowly avoiding a widespread wave of redemptions that forced some of its peers to limit redemptions. In contrast, peers, including Blue Owl Capital, filed redemption requests well above the industry-standard 5% cap.

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

Private credit funds targeting retail investors have seen a significant decline in demand since the beginning of the year, with many investors attempting to exit their positions. Many fund managers have opted to restrict redemptions, and currently more than $8 billion is "trapped" in these products.

In a letter to shareholders, the fund stated:

"Among similar unlisted BDCs, we are the only fund with redemption requests below the standard 5% quarterly cap."

Driven by approximately $1.04 billion in subscriptions, the fund saw net inflows during the quarter, while Goldman Sachs noted that many of its competitors experienced net outflows.

The fund noted that it relies more on institutional capital than on retail investors. In the current market environment, retail investors are withdrawing en masse due to concerns about lending standards and their exposure to companies potentially impacted by artificial intelligence.

The fund manager wrote:

"It needs to be made clear that we are in the same market environment as other non-listed BDCs, and of course we cannot completely avoid changes in the industry as a whole."

“We still believe that structural factors are more important: we have achieved strategic diversification of funding sources by maintaining an institutional-funded private lending platform. This means that we can be more patient, deploy investments at our own pace, and combine this with our project sourcing system to give us a competitive advantage throughout the credit cycle.”

The document shows that as of the end of February, the fund's year-to-date return was 0.4%, down from 1.3% in the same period last year. The entire industry generally declined; for example, a fund under Ares Management recorded a loss of 0.68% in February, its largest monthly drop since its inception in 2022.

Goldman Sachs also stated that the decrease in funds flowing into this asset class has brought some benefits, including wider spreads and better terms, "as lending institutions that rely on traditional retail fund inflows have begun to scale back their operations."

Baring Private Equity: Redemption pressure explodes, forced to limit transaction volume

A $4.9 billion private equity fund managed by Barings LLC capped redemptions in the first quarter after investors requested redemptions of up to 11.3%.

Media reports indicate that, according to a document dated Monday, Barings Private Credit Corp. only paid out less than half of the redemption requests, limiting the redemption rate to 5%. This means the fund retained approximately $180 million of funds that investors had originally requested to redeem.

In a letter to shareholders, the fund stated:

"We strive to manage capital responsibly for both investors who exit and those who continue to hold, while meeting their short-term liquidity needs."

One of the largest holders of Barings’ fund is Cliffwater LLC, whose $33 billion private credit range fund is the largest in its class. In the first quarter of this year, investors applied to redeem 14% of their funds from Cliffwater’s flagship fund, but this was ultimately capped at 7%.

Barings stated that limiting redemptions to 5% helps it capitalize on investment opportunities arising from market volatility.

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

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