As non-traded private credit BDCs are paying record amounts in redemptions this quarter, both alternative asset managers running these funds and financial advisors are trying to reassure investors that the current redemption rush does not reflect an underlying problem with their loan portfolios.
With private investors spooked by the idea that private credit might be faced with rising loan defaults, private placement BDCs reached $1.2 billion in paid quarterly redemptions, and publicly-traded BDCs paid $7.4 billion in quarterly redemptions as of early April. According to London-based research firm Preqin, which examined the loans included in these vehicles’ asset portfolios, there is currently little indication that the fear gripping investors is justified. The loans’ maturity dates tend to be spread over a number of years, they carry moderate spreads over SOFR, and the majority of the loans are first-lien loans, meaning the funds holding them will be among the first to get paid in case of any distress.
Still, asset managers have been feeling pressure to reassure investors that they have matters under control and that their experience matters more than any potential distress.
For example, in its roundtable with media on Apr. 17 and in a note posted on its website, executives from Hamilton Lane emphasized the healthy metrics private credit funds’ loan portfolios have exhibited. They noted that today’s loan-to-value ratios are significantly lower than in 2007, right before the Great Financial Crisis, while loan coverage ratios are higher. Hamilton Lane executives admitted the outlook for the private credit sector isn’t particularly bullish, but emphasized it isn’t bearish either. Rather, everything looks average.
“We think private credit is still a really compelling place in the market. We call it ‘the silver age’ of private credit,” Jackie Rantanen, managing director with Hamilton Lane’s evergreen portfolio management team, told reporters.
She added that private credit funds “are not all the same. Different funds have different fund managers, different portfolio construction and different areas of focus. The important thing we focus on, though, is private credit’s resiliency and performance…. It’s really hard to ignore that private credit has been resilient and has been way less volatile than what we have seen in the public markets.”
Meanwhile, in its Spring 2025 Advisor Pulse report, asset management giant Blackstone noted that the financial advisors it surveyed ranked the asset manager’s track record as the most important factor when selecting a private credit fund, with 30% of respondents citing it. The fund’s default and recovery rates came in last, with just 9% of respondents using them as the most important selection criteria, after credit underwriting experience and the asset manager’s size and scale.
According to an Apr. 16 note from West Conshohocken, Penn.-based RIA Hirlte, Callaghan & Co., which manages roughly $21 billion in assets, “The underlying credit performance of most portfolios remains broadly healthy. Redemption pressures appear to be driven primarily by investor sentiment and structural mismatch rather than a wave of defaults or fundamental deterioration. That distinction matters. A fund that is gating withdrawals because investors are nervous is a very different situation from a fund that is gating because the underlying credits are deteriorating.”
Still, Hirtle Callaghan reassured its clients that only 10% of the capital it committed to private credit investments was allocated to funds with gateable redemption structures, and that it did not see elevated credit stress in its portfolio.