Private credit tightens redemption channel, about $14 billion funds are temporarily retained to cope with market fluctuations.

Notice that before announcing the second quarter results, private credit management institutions have already admitted a harsh reality: the wave of redemptions sweeping through the $1.8 trillion market is unlikely to quickly subside. Now, as the second half of 2026 unfolds, direct lending institutions are experiencing firsthand just how relentless this pressure is. Redemption requests in the second quarter are often higher than in the previous three months. According to data from Robert A. Stanger & Co., the latest round of redemptions has trapped over $14.5 billion of investor capital in a dozen funds, while investors have only received back $8.6 billion. This means that for every dollar redeemed, about $1.70 is locked up. Industry experts generally believe that the latest batch of redemption requests reflects pent-up demand to some extent - in the previous quarter, several funds imposed a 5% withdrawal limit, blocking many investors' redemption intentions. Industry insiders say this cycle is mainly driven by market concerns about asset quality, particularly anxieties about the risk exposure of the software industry impacted by artificial intelligence; this pressure is expected to remain high until the backlog is resolved. Michael Kowal, managing director of Robert A. Stanger, said, "We did anticipate that redemption in the second quarter would increase as investors rotate out of private credit and into tangible assets such as real estate and infrastructure. We expect the clearing of the redemption queue to take up to eight quarters while inflows remain subdued." Private credit funds hinder more redemptions The situation at Blue Owl Capital Inc. on Thursday illustrates the significant challenge of rapidly reversing the pressure when faced with a large backlog of redemption requests. The private credit giant reported that investors applied to redeem 18.8% of their holdings in the approximately $34 billion "Blue Owl Credit Income Corp." fund in the second quarter, while redemption requests in the smaller "Blue Owl Technology Income Corp." fund were as high as 38.1%. Although these figures are slightly lower than the previous quarter, they remain at extremely high levels compared to major competitors. Despite increased communication efforts by Blue Owl executives over the past three months, even flying around the world to communicate with investors, the situation remains the same. Barclays Bank analysts led by Peter Troyes echoed views on the backlog issue in a report last week, writing that in the funds they analyzed, new redemption requests in the second quarter actually decreased as investors who were dissatisfied in the first quarter likely postponed their applications. Among the many fund management institutions witnessing an increase in redemption demand, Ares Management Corp. limited withdrawals from its strategic income fund for the second quarter in a row as redemption requests rose to 14.4%, compared to 11.6% in the previous quarter. Morgan Stanley's $7 billion private credit fund also limited redemptions to 5%, as investors tried to withdraw 11.6% of their holdings, exceeding the previous quarter's applications. Apollo Global Management Inc. capped redemptions in its largest non-publicly traded private credit fund for individual investors, as shareholders wanted to withdraw 16.8% of their funds, again surpassing the previous quarter. Some institutions were forced to restrict redemptions for the first time: the Blackstone Group limited withdrawals from its $79 billion flagship private credit fund BCRED to 5%, as investors applied to redeem 10% of their holdings. In the previous quarter, the fund took extraordinary measures to meet investors' 7.9% cash needs, even using cash from senior management to assist in redemptions. Of course, there are exceptions. Goldman Sachs has met all redemption requests in two quarters and says demand has decreased in the last three months. Redemption requests for a private credit fund at Oaktree Capital Management Corp. decreased by nearly half in the second quarter. International demand Against the backdrop of continuing increases in redemptions, some fund managers have pointed out another trend: some of the increased demand is coming from outside the United States. For example, Ares reported that nearly half of the redemption requests in its strategic income fund in the second quarter came from small institutions and family offices based primarily outside the United States - these types of investors make up less than 1% of the fund's shareholders. Apollo detailed similar geographical differences in its Apollo Debt Solutions tool: domestic redemption requests stabilized at 4.3%, while offshore redemption demand rose to 12.5%. Meanwhile, Blackstone reported that while overall redemption requests increased in the second quarter, the growth rate slowed as the bidding period neared its end, and domestic demand was lower than in the previous quarter. Some believe this may be a "roaring lion" strategy. Eric Klatz, chief investment officer at Arena Private Wealth, said, "It is common practice to exit such funds by applying for more shares than needed when you expect not to receive the full amount." He recalled a previous client who transferred a privately owned real estate investment trust fund to him when publicly traded real estate investment trusts got into trouble due to interest rate adjustments. The fund restricted investors' withdrawals in the previous quarter. He said, "I wanted to reduce my position by 50%, but each quarter I applied to redeem 100%, and I actually reached my goal faster."