Investors asked for their money back. They got 45 cents on the dollar.

Two of the largest private credit funds in the United States — run by Apollo Global Management and Ares Management — received redemption requests totaling more than $2.7 billion this quarter. They approved roughly half that amount, citing structural limits designed to protect the funds from exactly this kind of pressure.

Apollo’s Debt Solutions BDC, with $14.5 billion in net assets, received requests to redeem 11.2% of outstanding shares. The fund honored 5%, paying out roughly $730 million of the $1.5 billion investors wanted back. Ares Strategic Income Fund, valued at $10.7 billion, did the same — capping redemptions at 5% when investors requested 11.6%. Shareholders received about 43% of what they asked for.

The caps are legal. They’re disclosed in fund documents. They’re what managers call a “feature” of non-traded business development companies, the semi-liquid vehicles that have made private credit accessible to a broader range of investors.

But when more than twice as many investors want out as the system allows, something important gets revealed: the liquidity was never really there.

A $1.7 Trillion Market Under Stress

Private credit has exploded since the 2008 financial crisis. Tighter banking regulations pushed traditional lenders away from riskier loans, and asset managers stepped into the gap. The market has grown from roughly $500 billion a decade ago to an estimated $1.7 trillion today, according to Federal Reserve research.

The pitch is straightforward: higher yields than public bonds, floating rates that rise with interest rates, diversification from traditional markets. The tradeoff is illiquidity — investors typically lock up money for seven to ten years.

Semi-liquid funds changed that calculus. Interval funds and non-traded BDCs offered quarterly redemption windows, making private credit accessible to retail investors. The catch is in the fine print: funds typically cap quarterly redemptions at 5% of net assets. Most of the time, that’s enough. When it isn’t, investors wait.

The Software Problem

The redemption surge reflects a convergence of concerns. Yields on private credit have compressed as interest rates eased since 2022 — the premium over public debt has been cut in half, according to J.P. Morgan Private Bank research.

More pressing is exposure to software companies. An estimated 26% of direct lending is concentrated in software, according to Morgan Stanley, which expects default rates in direct lending to rise from 5.6% to 8% driven largely by artificial intelligence disruption.

Apollo CEO Marc Rowan addressed the concentration bluntly at a conference this month: “If 30% of your portfolio is in one industry and that one industry is being impacted by technology, you have not been a good risk manager.”

Apollo’s fund is “consciously underweight software” relative to peers, with 20% to 30% less exposure, according to a shareholder letter. Ares told investors that most redemption requests came from “a limited number of family offices and smaller institutions,” representing less than 1% of shareholders.

Both funds continue to take in money. Ares reported $708 million in inflows this quarter; Apollo attracted $724 million. The narrative from managers is that this is a feature working as designed — not a crisis unfolding.

When Liquidity Is a Suggestion

The current stress raises a question that extends beyond any single fund: can an illiquid asset class be packaged as semi-liquid without eventually breaking?

Interval funds are required by SEC rules to offer quarterly repurchases at a mandatory minimum of 5% of net assets. Managers can offer more but cannot offer less. When redemption demand exceeds that floor, the fund has no option to pause.

“Private credit is, by its nature, still an illiquid asset class,” Hightower Advisors noted in a recent analysis. “Positions cannot be efficiently unwound without cost, time, or potential disruption.”

What’s happening isn’t a credit crisis, many advisors argue, but a “manager-selection and structure test” driven by AI’s impact on software-heavy business models. Managers who lent against tangible assets and predictable cash flows are in better shape than those who bet on enterprise value.

Why It Matters Beyond the Wealthy

The investors affected are mostly wealthy individuals and institutions. But the $1.7 trillion private credit market connects deeply to the broader financial system. These funds lend to mid-sized companies that can’t access public bond markets. They finance leveraged buyouts. They hold debt that banks once kept on their own books.

For now, the data suggests a recalibration rather than a collapse. Blue Owl Capital recently sold roughly $600 million in loans at 99.7% of book value — essentially par — to institutional buyers who conducted due diligence. That’s not a fire sale.

But the gates at Apollo and Ares reveal something about the structure that’s been built. Quarterly liquidity sounds appealing. When the test comes, it turns out to be a suggestion, not a promise.

The investors who received 45% of their redemption requests this quarter understand the difference now.

Sources