By Bill Alpert
While private credit firms like Blue Owl Capital saw investors bolt from their funds last year, industry leader Ares Management Corp. cruised above the turbulence -- until now.
Tuesday, the firm's Ares Strategic Income Fund joined industry peers in turning down some requests by investors to get money back from the fund this quarter. Investors sought to redeem 11.6% of the fund's shares, or $1.2 billion worth. Ares will buy back 43% of those requests, worth $525 million. The Strategic Income Fund has $11 billion in equity, which it supplements with its own borrowings to hold some $23 billion worth of loans to 854 companies.
Nontraded funds like this try to allow some liquidity to their wealthy investors, while keeping enough money around to match the five-year average terms of the loans they make to companies. So they agree to buy back up to 5% of their shares in any quarter from investors who want some money back.
As rates retreated from recent highs, investors have gotten jumpy at reports of troubled corporate borrowers. Redemption requests have swelled above the 5% limits this year at nontraded funds run by BlackRock, Apollo Global Management, and Cliffwater, and those firms also turned down the excess requests.
Tuesday's news that Ares was capping redemptions knocked 1% off shares of Ares and Blue Owl. The shares were ticking up in Wednesday's pre-market trading.
The nontraded funds are marketed to institutions, family offices, and wealthy individuals, through private banks and wealth advisors. Some of the private credit firms also offer publicly traded counterparts to these funds. Barometers of public sentiment, the shares of the public funds sold off last year as the sector's popularity cooled.
Shares of Blue Owl's biggest public fund, Blue Owl Capital Corp., are now down to 75% of net asset value -- the book value of its loans -- while the firm's Blue Owl Technology Finance, which lends to software companies, is down to 50% of its asset value.
Ares is the biggest and oldest firm in private credit, and shares of its big publicly traded fund, Ares Capital Corp., had held up near their net asset value, while others wilted. But lately, even Ares Capital has sold off to 90% of net asset value.
In its shareholder letter, Ares gave a bit of context to its redemption requests, which may also provide insight into what kind of investors are behind the private credit industry's swell of redemptions.
"The majority of repurchase requests were made by a limited number of family offices and smaller institutions in select geographies who represent less than 1% of our over 20,000 shareholders," said Ares.
The fund said its portfolio quality remains solid, with its corporate borrowers growing their cash earnings at an annual average of 14% and none missing their expected interest payments.
Private credit firms have more flexibility than banks, in helping borrowers work through rough stretches, and like its peers, Ares allows some borrowers to satisfy interest requirements with noncash "payments-in-kind", that effectively add the interest amount to the loan balance. That helps keep default numbers down, in private credit portfolios.
The Ares letter said the fund has generated an 10.6% annualized total return since its start, and paid out dividends that averaged 9.4%. It will maintain its dividend for the next quarter. Investors continue to put new money into the Ares fund, which said it will take in about $200 million more than will flow out this quarter.
The fund manager said it hoped to turn private credit's current unrest to its advantage.
"Periods of market dislocation have historically created some of the most attractive opportunities in direct lending," Ares said.
Write to Bill Alpert at william.alpert@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 25, 2026 11:47 ET (15:47 GMT)
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