4 hrs ago
Australian Private Credit Gating Adds to Global Market Concerns
Private credit funds lend money to businesses and property developers.
Investors put money into these funds and may later want to take it out.
Some funds are now temporarily stopping or limiting withdrawals.
Metrics Credit Partners is the latest Australian firm reported to do this.
Fund managers say limits can help protect funds when many people want their money at once.
However, these restrictions can make investors nervous and encourage more people to sell.
Australia is also dealing with the collapse of property developer Bathla Group, which owed about A$3.4 billion.
The events have increased concerns about risks across the global private credit market.
Metrics Credit Partners temporarily suspended redemptions from some Australian private credit funds.
The suspension adds to global concerns about private credit funds restricting investor withdrawals.
Blackstone, Cliffwater, Apollo, KKR, BlackRock and Blue Owl have imposed similar limits.
Industry expert Dugald Higgins warned that investor withdrawals could create a negative feedback loop.
Australia’s private credit concerns were heightened by Bathla Group’s August administration and A$3.4 billion debt.
- Who
- Metrics Credit Partners, Perpetual Limited and other global private credit managers, along with their investors, are involved.
- What
- Some private credit funds have temporarily suspended or capped investor redemptions.
- Where
- The latest suspension involves Australia, while similar restrictions have occurred across the global private credit industry.
- When
- The Australian suspension was announced on Wednesday; related restrictions occurred earlier this year, including in early September, while Bathla Group entered administration in August.
- Why
- Funds are restricting withdrawals to protect liquidity as investor demand to exit grows and market concerns increase.
Fund Managers’ Liquidity View
Investor Confidence Concerns
Restrictions on withdrawals
Fund Managers’ Liquidity View
Managers can limit redemptions to protect liquidity and reduce the costs and inefficiencies of investors entering or exiting private credit funds.
Investor Confidence Concerns
Investors seeking to withdraw may view restrictions as a warning sign, particularly when demand to exit is already increasing.
Market stability
Fund Managers’ Liquidity View
Temporary gates may help funds manage withdrawal requests without being forced to sell assets in unsettled markets.
Investor Confidence Concerns
Restrictions can fuel anxiety and create a negative feedback loop in which more investors try to sell because others are selling.
Interest-rate exposure
Fund Managers’ Liquidity View
Private credit funds are presented as investments that can provide income while managers work to maintain calm in the sector.
Investor Confidence Concerns
Further interest-rate increases could increase risk aversion and pressure investors to move into cash, even when investments appear relatively safe.
Key facts
- Industry size
- The global private credit industry is valued at about $1.8 trillion.
- Australian firm
- Metrics Credit Partners temporarily stopped investors from accessing some funds.
- Fund administrator
- Perpetual Limited said redemptions of units in the underlying funds were temporarily suspended.
- Blackstone requests
- Blackstone Private Credit Fund received repurchase requests equal to about 10% of net asset value in early September.
- Cliffwater requests
- Cliffwater Corporate Lending Fund faced withdrawal requests for roughly 16% of shares.
- Bathla debt
- Sydney-based Bathla Group entered administration in August owing about A$3.4 billion, mainly to private lenders.
- Liquidity limits
- Private credit funds often limit redemptions to 5% of net asset value when markets become unsettled.
Quotes
Dugald Higgins
Head of income research and head of sustainability at Zenith Investment Partners
“If we get another round of interest rate rises, you know, people want to be coming risk off more and more. When things get bad enough, it doesn’t matter how safe they look, people will just go to cash.”
livemint.com
“It’s a negative feedback loop. People get nervous and sell and so therefore people get nervous and sell.”
livemint.com
Sources
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