Quick overview

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A new U.S.-based firm has opted to allow withdrawals from one of its private credit funds, stopping short of imposing a “gate” on redemptions, as others have done in recent weeks—including BlackRock.

In the latest chapter of the U.S. private credit saga, Oaktree Capital Management has decided to permit redemption requests from its $7.7 billion private credit fund, diverging from peers that have restricted withdrawals. The move comes amid mounting concerns that the war in the Middle East and fears over the economic impact of AI could deepen stress in the sector.

Oaktree will allow investors to redeem up to 8.5% of the fund’s net asset value—roughly $400 million—according to a filing released Friday. Its parent company, Brookfield Corporation, will contribute approximately $80 million of its own capital to help support liquidity. “The current environment represents more of a correction than a crisis,” the firm said in a letter to investors.

Typically, such funds cap quarterly redemptions at around 5% of net asset value to avoid forced sales of illiquid holdings. That has been the case for firms such as HPS Investment Partners (backed by BlackRock), Apollo Global Management, and Ares Management, which argue that limiting withdrawals protects remaining investors.

“If I allowed more people to redeem, I would not be fulfilling my fiduciary duty to those who stay, because the contract clearly states a 5% quarterly limit,” said Larry Fink in an interview with the BBC.

By contrast, Oaktree is aligning more closely with peers such as Blackstone and Blue Owl Capital, which have opted to meet 100% of redemption requests.

Private credit pressures persist

Since late last year, private capital funds—including private credit—have faced a wave of redemptions driven largely by retail investors, amid broader market unease that has intensified into the start of the year.

In a recent note, UBS warned that “private credit could face additional challenges if sustained increases in energy prices weigh on global growth,” particularly in the context of the Middle East conflict.

“This situation has raised concerns among some investors, who fear that this asset class could pose risks to the global financial system,” the bank added.

While noting that private credit still offers relatively attractive returns and diversification benefits for long-term investors, UBS emphasized that “selectivity is key.”

On that front, the vintage of loans is becoming increasingly important, with those originated in 2021–2022 showing higher risks of distress and default.

As with other private market strategies, investors must also be prepared to tolerate limited liquidity.

Another concern among retail investors is the sector’s exposure to software companies that could be disrupted by artificial intelligence. Ivek Bantwal, co-head of global private credit at Goldman Sachs Asset Management, noted in a client report that some managers have exposure to such companies of up to 30% of their portfolios.