[Edaily Marketin Reporter YunJi Kim ] As global asset management firms are gradually disclosing redemption figures for their private credit funds in the third quarter of this year, it has been revealed that Morgan Stanley’s funds have also seen a steady stream of double-digit redemption requests. While investors’ ability to recover their funds is being delayed as the volume of redemptions that could not be processed in the previous quarter continues to accumulate, the demand for new redemptions appears to be subsiding somewhat. With redemption request rates at other major asset managers, such as BlackRock, also declining in succession, the key question moving forward is whether the private credit market can overcome redemption pressures and maintain its position as a major investment destination.

Redemption Requests in the 11% Range… Backlog Being Cleared

According to industry sources on the 21st, Morgan Stanley’s flagship private credit fund, the North Haven Private Income Fund (PIF), received redemption requests from investors in the third quarter of this year equivalent to 11.4% of the fund’s total shares. According to an investor prospectus filed by Morgan Stanley with the U.S. Securities and Exchange Commission (SEC), the fund’s net asset value as of the end of June was approximately $3.1 billion; based on this figure, the total value of redemption requests amounted to approximately $360 million (about 498.3 billion won). Although the redemption rate fell by 0.2 percentage points from the previous quarter (11.6%), it remained high, exceeding 11% for two consecutive quarters.

The decision by investors to withdraw funds from private credit funds stems from broader market anxiety. Investors’ wariness has increased following Blue Owl Capital’s decision to restrict redemptions for some private credit funds, and the business outlook for software companies amid the spread of artificial intelligence (AI) has emerged as a new source of concern. It is argued that if AI replaces the functions of existing software, leading to a decline in revenue and profitability for related companies, the private credit funds that lent money to these firms may also face difficulties recovering their principal and interest. Capital market experts believe that these concerns, coupled with anxiety over loan underwriting standards, are influencing the redemption trends among high-net-worth individuals.

Amid continued demands from investors to withdraw their funds, Morgan Stanley has decided to maintain its previously established quarterly redemption limit of 5% to manage the fund’s liquidity. Since it is difficult to recover funds lent to companies in the short term, complying with all redemption requests could create significant pressure to sell off assets quickly. Consequently, the planned redemption volume for this quarter is approximately $160 million (about 221.4 billion won), amounting to just 43.8% of the volume requested by investors. Once this quarter’s redemptions are completed, investors who requested the redemption of their entire holdings during the previous two redemption rounds will receive more than 80% of the amount they requested.

With Morgan Stanley again deciding to redeem only about half of the requested amount, redemption requests from existing investors are expected to continue into the next quarter. In fact, about two-thirds of the third-quarter redemption requests came from investors who did not receive a full refund during the previous two redemption rounds. As these investors applied for redemption again to recover their remaining investment funds, the overall redemption request rate has exceeded 11% for two consecutive quarters.

Signs of Easing in New Redemption Requests… Is the Private Loan Market Set to Rebound?

Capital market observers view these figures as a potential sign that pressure for new redemptions is subsiding. Since a significant portion of the total redemption requests consists of volumes that could not be processed in the previous quarter, the proportion of investors seeking to withdraw funds for the first time is relatively low. Morgan Stanley also explained in an investor notice that, considering the scale of redemption requests and the composition of applicants, it is likely that the existing investor base remains stable.

Morgan Stanley’s assessment is partly corroborated by redemption trends at other funds. The third-quarter redemption request rate for the North Haven Private Income Fund A (PIF A)—another private debt fund managed by Morgan Stanley—was 6.8%, down 0.4 percentage points from the previous quarter (7.2%). Although this fund also agreed to redeem only 5% of its total shares, the fact that the redemption request rates for both of Morgan Stanley’s funds fell slightly suggests that pressure to withdraw capital is not intensifying.

Other major asset managers are also showing a trend of declining redemption request rates. According to industry sources, the third-quarter redemption request rate for BlackRock’s flagship private credit fund, the HPS Corporate Lending Fund (HLEND), was 11.5%, down 1.8 percentage points from the previous quarter (13.3%). TPG’s Twinbrook Capital Income Fund also saw its redemption request rate drop from 2.1% to 1.2%. Given that redemption request rates at major asset managers are falling in succession, some analysts suggest that the likelihood of further intensifying pressure for capital withdrawal in the private credit market is limited.

In this regard, an official from a global investment bank stated, “Although there has been a recent surge in redemption requests for private credit funds, it is difficult to view this as a sign of widespread market distress,” adding, “As redemption requests are decreasing and the backlog of pending requests is gradually being resolved, the underlying fundamentals of the private credit market remain solid.” He added, “Although recent redemption pressure has heightened caution across the market, this could actually present new investment opportunities for asset managers capable of selectively investing in high-quality borrowers.”