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Private credit redemptions are still running well above normal, even though the latest numbers show some relief. Blue Owl said on October 2 that investors asked to pull $4.2 billion from its two flagship non-traded funds in the third quarter, down from $4.7 billion in the second quarter and a record $5.4 billion in the first. Three days later, KKR disclosed that demand at one of its funds edged past a 5 percent limit. If you own one of these funds through a brokerage or an adviser, here is what the numbers mean for your money.
This explainer covers how private credit redemptions work, what each firm reported for the third quarter, why most of the requests are repeats, and what individual investors can do.
How private credit redemptions work
Non-traded business development companies, known as BDCs, lend money to mid-sized companies and pass the interest to investors. Unlike a stock or an ETF, shares can’t be sold on an exchange. Instead, the fund runs a quarterly tender offer: investors say how many shares they want back, and the fund buys back a limited amount. The usual cap is 5 percent of shares per quarter, according to Reuters, which reported the Blue Owl figures.
When requests exceed the cap, the fund fills them pro rata, meaning every seller gets the same fraction. Unfilled requests do not roll over. As AltsWire notes, shareholders have to submit them again next quarter. That is why the same investors can appear in the data several times in a row.
What Blue Owl reported for the third quarter
According to AltsWire’s summary of Blue Owl’s shareholder letters, filed on October 2, its largest fund, Blue Owl Credit Income Corp., which manages about $35.1 billion, received requests for $3.1 billion, or 16.8 percent of shares. That compares with 18.8 percent in the second quarter and 21.9 percent in the first. The fund plans to buy back about $900 million, which would fill roughly 30 percent of what investors asked for.
The tech-focused sibling is in worse shape. Blue Owl Technology Income Corp., a roughly $5 billion fund, saw requests of about $1.1 billion, or 39 percent of shares, versus 38.1 percent in the second quarter. It plans to repurchase $135 million, or about 13 percent of requests. Reuters says software makes up a large share of that portfolio and that the fund’s investor base is concentrated in Asia.
Blue Owl says the pressure reflects perception, not performance. AltsWire reports the credit fund’s Class I shares were up about 4 percent for the year through August 31, while the technology fund’s were down 0.21 percent. Non-accrual loans, which are loans no longer paying interest, were 0.2 percent of the credit fund and 0.3 percent of the technology fund. Those are the firm’s own figures.
What KKR and the rest of the industry saw
KKR’s K-FITS fund, formally KKR FS Income Trust Select, received requests for about 5.06 percent of shares, just over its cap, HedgeCo reported on October 6. The board repurchased all of them, using existing authorization and available cash. A sister fund, KKR FS Income Trust, saw requests of about 1.5 percent and also paid in full. This is not a crisis story. It shows that even a fund that clears every request is now brushing against its limit.
Reuters says the largest non-traded BDC managers saw third-quarter requests in a range of 10 to 17 percent, though it didn’t name them. In the spring, Apollo and Ares each held payouts to 5 percent when requests ran above 11 percent, and BlackRock and Morgan Stanley funds did the same, according to Investment Executive’s April recap. Blackstone’s much larger BCRED fund was the exception, raising its cap to 7 percent in the first quarter.
Why private credit redemptions keep rising, and why they may fade
Reuters points to two worries behind the private credit redemptions: lending standards, and the effect of artificial intelligence on software companies, which are big borrowers from direct lenders. The Federal Reserve’s September rate increase adds another wrinkle. Most of these loans carry floating rates, so interest income can rise, but borrowers with heavy debt feel the squeeze. Our earlier look at the AI stock selloff shows how quickly sentiment toward tech can change.
There is a second, quieter problem. Evercore analyst Glenn Schorr told Reuters the longer-lasting issue is slowing new subscriptions, since fresh deposits help pay for withdrawals. If fewer people are buying in, the funds rely more on repayments from borrowers and on credit lines to meet tender offers.
What individual investors should check
First, read your fund’s tender-offer terms. Know the cap, the schedule and the fact that you may get back only a fraction of what you request. Second, treat these funds as long-term holdings you may not be able to sell on a given date. Money you need within a year does not belong in them. Third, look at how much of your portfolio sits in non-traded funds in total, and ask your adviser what fees you are paying. Fourth, don’t assume a high headline yield is safe. A 9.2 percent annualized distribution, which is Blue Owl’s figure, comes with the risks described here. This is general information, not financial advice.
For the broader credit picture, see our report on the record credit default swap on CoreWeave and our look at what Capital One and Amex earnings say about borrowers. Both show how credit stress is being priced elsewhere.
What to watch next
Watch the December tender window at Blue Owl, where the next round of private credit redemptions will show up, whether OTIC’s requests fall below 30 percent, and whether other managers disclose the same pattern. Also watch for any change to the 5 percent cap, which would signal that a manager is under more pressure than it admits.
Editor’s take
The headline improvement is real but smaller than it looks. Requests are down, yet most are repeats from investors who still haven’t been paid. The test of private credit redemptions isn’t one quarter’s number. It’s whether the queue shrinks without funds having to sell loans, and whether new money returns. Until then, anyone holding these funds should plan as if the next tender will fill only a portion of what they ask for.
