Ares is the latest private credit player to limit withdrawals after investors ask to redeem their money
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- Investors in an Ares' private credit fund asked for 11.6% of their shares back in the first quarter.
- The firm limited redemptions to 5%, citing its design and plan to continue investing.
- Ares joins competitors Blue Owl, Blackstone, and Apollo in having increased withdrawal requests.
Ares is the latest private credit fund limiting payouts to investors following a record spike in attempts to withdraw money.
Investors requested to redeem more than 11% of shares in Ares Strategic Income Fund this quarter, and the firm decided to cap payouts at 5%, according to a filing with the Securities and Exchange Commission. The fund's net value is $10.7 billion as of February 28, with a total portfolio value of $22.7 billion.
Investors looked to withdraw more than $1.2 billion in the quarter, with the firm limiting withdrawals to about $524.5 million. It plans to allow 43% of the requested redemptions, with it pro-rated so that each requesting shareholder receives a portion of their request.
The fund actually grew in the first quarter, with $708 million in inflows leading to $184 million in net gain. According to an SEC filing, the fund actually saw the amount of money coming in from investors increase from January to February to March, even as jitters increased in the asset class.
Ares joins other major private credit firms, like Blackstone, Apollo, and Blue Owl, in seeing massive redemptions amid rising anxiety about the asset class. Concerns over the underlying quality of private credit loans, overexposure to embattled software companies, and concerns about liquidity in the industry's popular semi-liquid retail strategies have led some investors to look for an exit.
According to a letter sent to shareholders, a majority of requests came from a "limited number of family offices and smaller institutions in select geographies," making up less than 1% of the fund's total shareholders.
The choice to limit withdrawals to 5% of outstanding shares was made "consistent with the Fund's design," according to the letter, which also touted Ares's ability to deploy capital, and make money for investors in challenging times. The fund, the letter says, is "well-positioned."
"We believe periods of market dislocation have historically created some of the most attractive opportunities in direct lending, in certain cases, such as during the COVID pandemic, driving nearly 300 basis points of incremental return," the letter said.