While retail investors are increasingly concerned about their ability to exit their private credit investments, institutional investors are largely holding firm amidst a wave of business development company redemptions, which have increased significantly this year.
Institutional funds have long accessed the asset class through closed-end funds, separate accounts and other structures designed for long-term holding periods. Retail investors are increasingly gaining access to private credit through semiliquid vehicles such as interval funds and BDCs.
“Institutional and retail investors approach private credit from fundamentally different starting points, which drives a persistent divergence in attitude,” says Nick Tsafos, a partner in advisory firm EisnerAmper. “This divergence is driven by differences in market dynamics, liquidity needs and the types of investment vehicles available to each.”
Tsafos notes that recent market dynamics have amplified this divergence: Rising interest rates, tightening credit conditions and concerns about underwriting standards, sector concentration and the resilience of private credit in an economic downturn have become more visible.
Still, those concerns are not resulting in a broad institutional retreat. A Bloomberg Intelligence survey released in April found that 58% of institutional investors were still attracted to opportunities in direct lending, with 46% expressing interest in asset-based financing. Still, Bloomberg noted that 62% of investors were concerned by possible deteriorating credit quality and that 57% cited rising defaults as a cause for concern.
“Institutional investors typically take a long-term view of private credit, with a focus on yield and stability,” says Nayef Perry, managing director and head of direct credit at Hamilton Lane. “Given their focus on deep manager due diligence, our observation is that institutional investors have been less focused on public BDC price dislocation as a way to gain access to the asset class.”
Troubles in Credit?
Some analysts say the recent wave of redemption requests should not be interpreted as a breakdown in the asset class, as managers often set pre-set repurchase limits and pro-rated withdrawal limits for their semiliquid funds.
“One quarter of pro-rated redemptions isn’t really enough to tap out or draw down the liquidity within these products,” says Brian Moriarty, principal, manager research at Morningstar. “Most of them, when they talk to us, they have explained that they should be able to withstand quarters and quarters of outflows, and we’ve only had really one—maybe two, depending on the product. … I think it’s too soon to say that this is the death of these products … more likely, it just reflects shifting investor preferences, and potentially we could see some funds do much worse when it comes to liquidity and offering investors their money back. But right now, I think it’s a little bit early to know for sure.”
Private credit BDC redemptions, which began to accelerate in the year’s first quarter, are continuing into Q2. Last week, Blackstone’s BCRED BDC ($79 billion in assets under management) limited withdrawals after redemption requests stood at 10% of outstanding shares. Cliffwater last week reported redemption requests of 17% from its Cliffwater Corporate Lending Fund BDC ($31 billion).
In April, Monroe Capital CEO Ted Koenig told Bloomberg, “When individual investors want to get out, they’re like fish—they swim in schools. They all come in at the same time; they all want to go out at the same time.”
Monroe Capital also limited redemptions on one of its Income Plus Corp. BDC ($2.8 billion) as requests hit 9%. All three funds set redemption limits at 5%.
What LPs Think
Among insures—who are increasingly allocating to private credit—the recent redemption wave could attract even more interest.
“From the conversations we’ve been hearing around the industry, it’s really, so far, been kind of a non-event for the institutional investors with long experience in private fixed-income allocations,” says Joe Pursley, head of insurance for the Americas at Nuveen.
Pursley notes that BDC stake sales by retail investors could present themselves as an opportunity for institutional LPs.
“For the institutional investors that understand the credit, if, all of a sudden, retail investors start to sell at a discount even while the underlying credit is solid, there may actually be a buying opportunity for them,” Pursley says.
Some institutions are buying. In February, Blue Owl Capital—which made headlines for being among the first alternative investment managers to have redemption requests exceed caps on its BDCs—sold $1.4 billion BDC stakes to buyers that included Kuvare and public pension funds the California Public Employees’ Retirement System, the Ontario Municipal Employees Retirement Systm and BCI (the public asset manager for pensions and investment funds in British Columbia).
Increased retail participation in alternative investments overall has also drawn the ire of some traditional institutional investors, who have reservations about investing in private credit alongside more mom-and-pop counterparts. According to Bloomberg Intelligence’s 2026 Private Markets Survey, released in April, 57% of surveyed institutional limited partners said they had a negative or very negative view of retail investors entering private markets.
“Many institutional investors remain cautious about the growing role of retail capital, particularly over concerns that increased retail participation could shift GP focus away from core investment execution and alignment with traditional LP priorities,” the Bloomberg Intelligence report said.
Tags: Private Credit