NEW YORK: Wall Street banking giant Morgan Stanley has limited redemptions at one of its private credit funds after investors sought to withdraw almost 11% of shares outstanding, a regulatory filing shows.
A flurry of bad news following several credit issues in recent months has drawn fresh scrutiny to the roughly US$2 trillion private credit market, as investors question the health of loan portfolios and the resilience of borrowers in a higher interest rate environment.
Morgan Stanley Private Credit said in a letter to investors that the North Haven Private Income Fund (PIF) returned roughly US$169mil or about 45.8% of investors’ tender request for the quarter.
The Wall Street powerhouse signalled that the private credit industry faces several challenges, including uncertainty around a merger and acquisition recovery, speculation about credit deterioration and a contraction in asset yields.
Morgan Stanley said PIF was invested in 312 borrowers across 44 industries as of Jan 31, and that credit fundamentals at the fund remain broadly stable.
“As marketed, and consistent with the disclosure in our private placement memorandum, we will be fulfilling tender requests for 5% of units outstanding as of Dec 31,” the bank’s investment management arm said in the letter.
Morgan Stanley added that limiting withdrawals will help avoid asset sales during “periods of market dislocation” and maximise risk-adjusted returns for investors over time. “Dispersion between stronger and weaker credit is increasing,” it said.
Fears that artificial intelligence could erode the earnings power of software companies and weaken their ability to repay loans are rippling through private credit – a key lender to the technology sector – prompting investors to reassess exposure, redemption risks and fundraising prospects, analysts said.
Concerns were compounded by renewed troubles at Blue Owl over asset sales, triggering a sharp sell-off in shares of alternative asset managers with a footprint in the private credit market.
Meanwhile, JPMorgan Chase reduced the value of some loans to private credit funds after reviewing the impact of market turmoil around software companies, two people familiar with the situation told Reuters on Wednesday.
Analysts still pointed to JPMorgan CEO Jamie Dimon’s warning in October of “more cockroaches” lurking in the credit market as a potential source of investor anxiety, even though the issues so far do not appear to be systemic.
Earlier this month, BlackRock, the world’s largest asset manager, disclosed that it has limited withdrawals from a flagship debt fund after a surge in redemption requests. Alternative asset manager Blackstone on March 2 also disclosed its private credit fund BCRED faced a surge in withdrawals in the first quarter. — Reuters
