Morgan Stanley, Cliffwater and BlackRock Face 27% Withdrawal Wave but Allow Only 17%

In the past few weeks, some of the world’s largest asset managers have imposed limits on requests for private credit withdrawals from investors. Morgan Stanley, a US-based bank, recently capped redemptions from its North Haven Private Income Fund and returned less than half of what investors requested, Bloomberg reported.

Other major funds, like Cliffwater and BlackRock, are facing a similar situation. Cliffwater LLC had to cap redemptions from its $33 billion Cliffwater Corporate Lending Fund at 7% after investors attempted to redeem about 14% of shares in the latest quarter. BlackRock Inc., too, limited withdrawals to 5% when investors submitted redemption requests exceeding 9%.

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Private Credit Withdrawals Surge as Morgan Stanley, Cliffwater and BlackRock Tighten Limits

The North Haven Private Income Fund, a Morgan Stanley fund, limited withdrawals to 5% this quarter, even as investors sought to withdraw 11% of the funds.

In a letter to investors, Morgan Stanley explained the need for imposing caps on private credit withdrawals.

“By maintaining appropriate limits on the quarterly repurchase offer, the Company seeks to avoid asset sales during periods of market dislocation and provide for conservative capital structure management through evolving market conditions. We believe this approach supports portfolio optimization and aligns with the objective of maximizing risk-adjusted returns for investors over time.”

This time, the $8 billion North Haven Private Income Fund returned $169 million to investors.

We are witnessing a similar situation with Cliffwater redemptions and BlackRock withdrawal limits. This trend underlines a growing concern in the private credit market.

According to a Reuters report, there’s growing fear among investors of bad loans. Many also believe that AI will reduce a software company’s overall revenue and, in turn, affect its ability to repay loans.

With private credit as a major lender to the sector, the $2 trillion private credit market is poised to be affected.

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For now, analysts believe that these restrictions reflect normal liquidity management and not a systemic crisis. The caps on private credit withdrawals apply to this quarter. Investors will be able to redeem more funds in the next quarter.