Investors in private credit funds demonstrated a preference for staying locked in their positions rather than accepting substantial losses. Cox Capital Partners recently attempted to purchase shares from five non-traded business development companies (BDCs) managed by major firms like HPS Investment Partners, Apollo Global Management, Ares Management, and Blue Owl Capital. The offer, priced at a 26% average discount to net asset value, aimed to provide liquidity but secured less than $5 million in commitments by the deadline - far below the $90 million target. Some funds received zero bids.
John Cox, CEO of Cox Capital, acknowledged the disappointing outcome. "We obviously hoped the offers would have been more successful, but we'll keep coming back," he said.
The lackluster response underscores a broader challenge in private credit markets. Investors are grappling with limited exit options, as redemption queues balloon to nearly $15 billion industry-wide. Funds restrict withdrawals to about 5% of net asset value per quarter, leaving many unable to access their capital without steep concessions.
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Fitch Ratings reports that default rates in the sector reached historic highs earlier this year and remain elevated. This strain has forced some funds to return more money to shareholders than they attract in new investments, exacerbating liquidity pressures. Cox Capital's proposal offered an escape hatch, but the steep discount proved unpalatable for most.
The standoff reflects a difficult calculation for private credit participants. Selling now guarantees losses, while waiting risks prolonged lock-ups or further declines in asset values. This dynamic is particularly acute for non-traded BDCs, which lack the liquidity of publicly listed counterparts.
Cox Capital plans to adapt its strategy, eyeing interval funds managed by Cliffwater LLC and Variant Investments for future liquidity offers. The firm may adjust pricing or terms based on market feedback.
Representatives for HPS, Apollo, Ares, and Blue Owl declined to comment.
For now, the majority of investors appear willing to endure the wait rather than crystallize losses - a sign of both caution and dwindling alternatives in a strained market.