Ares Limits Investor Withdrawals: Private Credit Concerns Rise

Ares Management, one of the largest players in the private credit market, is limiting withdrawals from its $10.7 billion Strategic Income Fund, following a surge in investor requests to redeem their money. The firm will cap payouts at 5% of outstanding shares, according to a Securities and Exchange Commission filing and a letter to shareholders.

Investors sought to redeem more than 11% of the fund’s shares this quarter, totaling over $1.2 billion, but Ares will only allow approximately $524.5 million to be withdrawn. The firm intends to pro-rate redemptions, ensuring each requesting shareholder receives a portion of their requested amount. Despite the redemption requests, the fund experienced a net gain of $184 million in the first quarter, benefiting from $708 million in inflows, according to the SEC filing. The fund’s net asset value stood at $10.7 billion as of February 28, with a total portfolio value of $22.7 billion.

Ares’s move follows similar restrictions implemented by other major private credit firms, including Blackstone, Apollo and Blue Owl, as anxieties mount within the asset class. Concerns center on the quality of underlying loans, potential overexposure to struggling software companies, and liquidity challenges within the industry’s retail strategies, prompting investors to seek exits, according to reports from the Financial Times and Business Insider.

According to the shareholder letter, the majority of redemption requests originated from a “limited number of family offices and smaller institutions in select geographies,” representing less than 1% of the fund’s total shareholder base. Ares defended the decision to limit withdrawals, stating it was “consistent with the Fund’s design” and highlighting the firm’s ability to deploy capital and generate returns even in difficult market conditions.

The letter emphasized Ares’s confidence in its position, stating the fund is “well-positioned” to capitalize on market dislocations. “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 stated.

The restrictions on withdrawals come as Business Day’s reported that Business Development Companies (BDCs) are showing resilience despite the increase in redemptions.