By Patturaja Murugaboopathy
July 17 (Reuters) – Pressure in private markets is showing up in an uncomfortable place: the gap between what funds say their assets are worth and what investors may have to accept to get out now.
Cox Capital Partners this week launched tender offers for shares in non-traded business development companies run by Apollo, Ares Capital and BlackRock’s HPS Investment Partners, offering to buy them at discounts of 15% to 30% to their May-end net asset values.
The offers are small, at about $31 million combined, but the pricing is telling. Cox is offering Apollo fund investors 70 cents on the dollar, HPS investors 75 cents and Ares holders 85 cents.
They come as redemption pressure mounts across non-traded BDCs. Fitch Ratings found redemption requests increased at 10 of the 16 non-traded BDCs it tracks in the second quarter, reaching an average 10.3% of shares outstanding, up from 9.7% in the previous quarter.
These vehicles typically limit quarterly repurchases to 5% of NAV. When investors ask for more, withdrawals are prorated, potentially leaving them waiting quarter after quarter. For those unwilling to wait, the secondary market offers an alternative, but liquidity comes at a price.
That price is becoming harder to ignore. Listed BDCs trade at about 75 cents on the dollar on average, and in some cases public and private vehicles managed by the same firms hold increasingly overlapping portfolios. Similar private-credit exposures can therefore carry very different valuations depending on the wrapper in which they are held.
The strain extends beyond private credit. Partners Group said withdrawals from some mature evergreen funds are likely to continue for several quarters after it capped redemptions from an $8.6 billion private-equity fund last month.
Clients pulled $3.8 billion in the first half, with three mature evergreen strategies accounting for 79% of outflows. Partners Group said current trends could trim asset growth by 1% to 2% over 18 months, while outflows from the funds could reach $10 billion to $20 billion in a downside scenario.
The warning came despite $16 billion in new client commitments, underscoring the two-way dynamic in private markets: fresh money is still arriving, while investors in older funds are trying to leave. That exposes the central weakness of evergreen funds sold to wealth clients: they offer access to private assets, but not always easy exits.
Regulators are also trying to understand where the risks sit. European supervisors seeking greater visibility into banks’ exposure to the roughly $2 trillion private-credit market have encountered resistance from U.S. authorities over sharing more granular information, Reuters reported.
The headline exposures look modest. Euro zone banks have an estimated €62.5 billion of exposure to private credit globally, equal to just 0.2% of their assets. Insurers hold about €211 billion and pension funds about €52 billion.
But regulators worry that aggregate numbers understate the financial links beneath the surface. Private-credit assets can move through multiple layers, connecting banks, insurers, pension funds and asset managers through collateralized loan obligations, leveraged lending and asset-intensive reinsurance.
An ECB stress exercise found direct losses from a severe private-credit shock would be manageable. The bigger risk came from second-round effects, including broader market selloffs and valuation losses spreading through the financial system.
Together, the developments underscore a broader concern: as private markets grow and become more interconnected, limited liquidity and opaque valuations could amplify stress when investors head for the exits.
(Compiled by Patturaja Murugaboopathy, Editing by Vidya Ranganathan)
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