Following the billions of dollars in influx of funds in recent years, private credit managers in the United States have begun to see retail investors closing their portfolios, wary of the "cockroaches" that appear in this market, according to the metaphor used by JP Morgan CEO Jamie Dimon last year.
A survey by the investment bank RA Stranger, cited by the Financial Times (FT) , shows that new investments in funds called Business Development Companies (BDCs) – vehicles that work with small and medium-sized companies, widely distributed among retail investors and high-net-worth individuals – fell 40% between December and January, to US$3.2 billion.
With over $1 trillion in assets, the private credit market is shaken by a combination of low interest rates, rising defaults, and an oversupply of loans to software companies in the age of artificial intelligence (AI) .
The situation is weighing on asset managers and harming the sentiment of retail investors. The most emblematic case is that of Blue Owl . At the end of February, the firm, with approximately US$300 billion under management, suspended withdrawals of funds aimed at retail investors, even while allowing quarterly redemptions of up to 5% of the fund's value.
Blue Owl is not alone. According to the Financial Times, firms like KKR , Apollo Global Management , and BlackRock have recorded write-downs due to delays, at a time when investor appetite is also affected by interest rate cuts implemented by the Federal Reserve (Fed).
The result is increased fears that outflows will exceed inflows, creating a mismatch in the flow of resources. In the fourth quarter, funds were largely able to meet redemption requests with incoming funds, limiting the need to resort to other sources to pay outgoing investors.
Problems in the American private credit market, especially in the BDC market, gained prominence after the bankruptcy of vehicle financing company Tricolor Holdings and auto parts supplier First Brands Group, companies that had been taking out many loans, in September of last year.
The following month, Dimon brought up the cockroach metaphor, suggesting there might be more out there. "I probably shouldn't say this, but when you see one cockroach, there are probably more. Everyone should be warned about that," the JP Morgan CEO said on the third-quarter earnings call.
The International Monetary Fund (IMF) also sounded the alarm. Last October, President Kristalina Georgieva stated that countries need to pay more attention to the private credit market, whose operations are not monitored by regulatory bodies.
According to wealth management executives interviewed by the Financial Times , the case has parallels with the experience of 2022, when Blackstone 's Breit real estate fund limited redemptions after a wave of selling.
The fund ultimately overcame the turbulence, selling assets, and posted an 8.1% return last year, becoming a symbol of the stress a semi-liquid fund can face when retail investors rush to redeem their investments.
