Shares of the biggest alternative asset managers tumbled Wednesday after Cliffwater LLC’s flagship private credit fund reported even larger redemption requests than in the first quarter, setting off a new wave of fears about the industry.
Shares of Blackstone Inc., KKR & Co. Inc., Blue Owl Capital Inc., Apollo Global Management Inc. and Ares Management Corp. all fell at least 4%, with analysts expressing concern that the high level of redemptions could further extend a period of tumult for the $1.8 trillion private credit market.
“We remain in the camp that the Alts may not work until Labor Day given related reporting cycles, though such a view is contingent on redemption requests peaking, or showing further signs of deceleration,” TD Cowen analyst Bill Katz wrote in a note to clients.
After 17% redemption requests for its $31 billlion fund, Cliffwater told investors they would cap withdrawals at 5%, according to a letter seen by Bloomberg. Funds managed by Blackstone, BlackRock Inc., Ares Management, and Oaktree Capital Management all have tender offers expiring in June, which will be watched closely by investors. Katz said if funds’ March and April data fail to show improvements, industry recovery could be pushed out until year-end.
Business development companies have been under increasing pressure this year as retail investors raise their redemption requests on fears that the asset managers are exposed to businesses that could be disrupted by artificial intelligence. Blue Owl led the declines earlier this year and said in April that it was limiting redemptions after a surge in requests.
“AI disintermediation risk to software is a near-term risk over the next 2 years due to shorter maturity and the concentration in the high-risk cohort,” Citigroup analyst Steph Choe wrote in a May note to clients. “While BDC manager commentary appears sanguine, forward-looking market signals suggest preparation for stress.”
Oaktree Capital Management managing director Christina Lee said that the firm sees more opportunities in middle market companies that face less risk of disruption, with the firm being less aggressive on data center financing than peers.
“We’re watching it carefully and just knowing where we stand its hard to say, ‘hey, let’s be aggressive,’” Lee said at the Bloomberg Global Credit Forum Wednesday.
Other asset management firms also pushed back on the idea of the firms taking on heightened risk.
“I think what’s happening is the folks that own these funds are looking at it and saying, ‘even if I am generating the return that I wanted, I might as well just go get my money back because life’s too short,’” Ares Chief Executive Officer Mike Arougheti told Bloomberg Television Wednesday. “I don’t know if that is healthy or not, but I think it’s more about investor psychology than an understanding of what the real risk and return is there.”
Written by: Monique Mulima — With assistance from Sinead Cruise, Olivia Fishlow, Ellen DiMauro, and Nabila Ahmed @Bloomberg
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