Investors are fleeing private credit. What the funds should do now.
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Investors are fleeing private credit funds due to fears of bad loans, causing a major upheaval in the $1 trillion market. Private-credit managers are trying to reassure investors that credit quality is good, but the lack of transparency and liquidity in the portfolios is fueling concerns.
Private-credit funds are facing a crisis as investors withdraw their money due to fears of bad loans. The funds make junk-grade loans to private companies with yields of around 10%. Despite low default rates, investors are exiting funds like Blackstone Private Credit and BlackRock's HPS Corporate Lending fund. Publicly traded business development companies are down 10% this year and trade at a 25% discount from their portfolio values. Private-credit managers say credit quality is good, but the lack of transparency and liquidity in the portfolios is fueling concerns. To rebuild investor confidence, managers should cut fees and improve transparency.
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