Distrust toward private credit is spreading uncontrollably across Wall Street, with a growing number of funds unable to meet a flood of redemption requests. Even executives at private equity funds that made the investments have begun to admit that recovering capital from existing investments in sectors such as software is increasingly unlikely.
Reuters reported on Friday that Apollo Debt Solutions, a private credit fund run by Apollo Global Management, received $1.7 billion in redemption requests in the previous quarter, equivalent to 11.2% of net asset value (NAV). In response, Apollo Global Management decided not to return all of the requested amount, instead allowing redemptions only up to the 5% limit stipulated in its charter.
Apollo Debt Solutions is a business development company (BDC) that makes loan investments in large private U.S. companies with no set maturity. The fund's net assets stood at $15.1 billion (approximately 22.5 trillion won) as of the end of last month. Apollo Global Management is not alone — large-scale redemption requests have also flooded into private credit funds run by Blackstone, Blue Owl and Ares Management in recent months.
Earlier, on the 15th of this month, the Wall Street Journal reported that John Zito, co-head of asset management at Apollo Global Management, warned at a private meeting with UBS investors in late February that small software companies acquired by private equity funds could face difficult times. In a recording obtained by the WSJ, Zito said, "I'm worried because most companies acquired between 2018 and 2022 were traded at valuations far higher than reality," adding, "If you extend credit to an average small-to-mid-sized software company, you might recover only 20 to 40 cents on the dollar."
According to Bloomberg, Steven Nesbitt, CEO and founder of Cliffwater, an alternatives-focused asset manager, and his son Blake Nesbitt, chief investment officer, have also recently scrambled to secure cash for redemptions. Cliffwater similarly received redemption requests amounting to 14% of total shares in its flagship private credit fund, the Cliffwater Corporate Lending Fund, and ultimately set the redemption limit at 7%. Bloomberg reported, "Cliffwater has reportedly been shopping around the market for months to offload approximately $1 billion in private credit holdings," adding, "The Nesbitts, father and son, who rode the private credit market's rally to the top, now face the risk of a steep fall in a downturn." Bloomberg further noted, "Cliffwater's flagship product holds more than 4,000 loan assets, and roughly a quarter of the portfolio is in the information technology sector, which faces threats from artificial intelligence," warning, "If Cliffwater rushes to raise cash to meet redemption demands, it could trigger a vicious cycle of declining asset values."
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