Redemption Wave Hits: Goldman Sachs Narrowly Holds the Line, Barings Forced to Cap, Private Credit Liquidity Pressures Surface

The private credit market is experiencing a noticeable "loosening" of capital.

Under the multiple pressures of high interest rates, concerns over credit quality, and expectations of an AI-driven shock, investors are beginning to accelerate their withdrawal from this once-hot asset class. Although some top institutions are still narrowly holding the line on redemptions, an increasing number of funds have been forced to limit withdrawals, and liquidity pressures in the industry are rapidly surfacing.

Goldman Sachs: Narrowly Holding the Redemption Line

According to a filing on Monday, the $15.7 billion Goldman Sachs Private Credit Corp. (a so-called non-publicly traded Business Development Company) met redemption requests equivalent to 4.999% of its outstanding shares in the first quarter, narrowly avoiding a broad wave of redemptions that forced some peers to limit withdrawals. In contrast, peers including Blue Owl Capital saw redemption requests far exceeding the 5% cap commonly set in the industry.

However, this redemption ratio is still higher than the 3.5% recorded in the fourth quarter of last year.

Private credit funds targeting retail investors have seen a significant drop in demand since the beginning of the year, with many investors attempting to exit their holdings. Many fund managers have chosen to limit redemptions, and over $8 billion in capital is currently "trapped" in these products.

The fund stated in a letter to shareholders:

"Among non-publicly traded BDCs in our peer group, we are the only fund with redemption requests below the standard 5% quarterly limit."

Driven by approximately $1.04 billion in subscription capital, the fund achieved net inflows for the quarter, while Goldman Sachs stated that many of its competitors experienced net outflows.

The fund pointed out that it relies more on institutional capital than retail investors. In the current market environment, retail investors are withdrawing in large numbers due to concerns about lending standards and exposure to companies potentially impacted by artificial intelligence.

Fund managers wrote:

"To be clear, we are in the same market environment as other non-publicly traded BDCs and, of course, cannot completely avoid industry-wide changes."

"We still believe that structural factors are more important: by maintaining an institutional capital-oriented private credit platform, we have achieved strategic diversification of our funding sources. This means we can be more patient, deploy capital at our own pace, and combined with our deal sourcing system, this gives us a competitive advantage throughout the credit cycle."

Filings show that as of the end of February, the fund's year-to-date return was 0.4%, down from 1.3% in the same period last year. Industry-wide performance has generally declined; for example, a fund under Ares Management recorded a 0.68% loss in February, its largest monthly decline since its inception in 2022.

Goldman Sachs also noted that the reduced inflow of capital into this asset class has brought some benefits, including wider spreads and more favorable terms, "as lenders relying on traditional retail capital inflows begin to contract their business."

Barings Private Credit: Redemption Pressure Surges, Forced to Cap

A Barings LLC-managed fund with $4.9 billion in assets capped its redemption ratio in the first quarter after investors requested to redeem 11.3% of its shares.

According to media reports and a filing on Monday, Barings Private Credit Corp. paid out less than half of the redemption requests, limiting the redemption ratio to 5%. This means the fund retained approximately $180 million that investors had requested to withdraw.

The fund stated in a letter to shareholders:

"We strive to responsibly manage capital for both exiting and continuing investors while meeting short-term liquidity needs."

One of the largest holders in the Barings fund is Cliffwater LLC, whose $33 billion private credit interval fund is the largest product of its kind. In the first quarter of this year, investors requested to redeem 14% of the capital from Cliffwater's flagship fund, but redemptions were ultimately capped at 7%.

Barings stated that limiting the redemption ratio to 5% helps it seize investment opportunities arising from market turmoil.

Barings also said that despite the redemptions, the credit quality of its investment portfolio remains "strong." So-called "non-accrual loans" (loans that no longer generate interest income) accounted for 0.4% of the portfolio at the end of December, below the industry's historical average of 0.9%.

The fund also reported an annualized return of 10.6% since its investment began in 2021.