Private Market Jitters Return as Partners Group Caps Withdrawals

This year, the alternative assets sector has its very own Groundhog Day. It goes like this: Investors request to withdraw a significant amount of their money from a private market fund, the fund manager announces redemptions are being capped, and equities across the sector sink deeper than Punxsutawney Phil’s underground burrow.

Driven by investor anxiety over loan valuations and exposure to AI disruption in the software industry, it has happened with private credit funds including Blue Owl, Morgan Stanley and BlackRock. It happened again Tuesday at Cliffwater, which restricted withdrawals from its $31 billion flagship private credit fund to 5% of outstanding shares, after investors requested 17%. And, in a new development Wednesday, the exodus spread to private equity. Switzerland’s Partners Group limited withdrawals to 5% at its $8.6 billion flagship private equity fund after second-quarter redemption requests reached nearly 10%.

Dialing Private Numbers

Private credit involves investing in loans, typically considered too risky or complex for traditional banks, made by non-bank financial institutions. Private equity, on the other hand, involves investing in stakes in nonpublic companies.

Funds on both sides have considerable overlap, particularly as private credit has frequently loaned to private equity-backed companies. But, until Wednesday, only private credit funds had been hit by this year’s exodus. 

The reason that Partners Group’s buyout-focused Global Value Sicav fund, which has investments in hundreds of companies, was hit may say more about the uniqueness of Partners than it does about private equity in general:

• Institutional investors, who come with the intention of locking up their money for years, make up the bulk of private equity investors. However, Partners Group courts high-net-worth individuals, who account for roughly 20% of its money.
• That means, among peers, Partners has greater exposure to individual investors, who are more inclined to shake up their portfolios. 

In any case, markets didn’t take the latest sign of investor discontent with private markets lightly. Partners’ Zurich-listed shares fell 16% on Thursday, Swedish private equity giant EQT AB fell 6.5% in Stockholm, and the Amsterdam-listed shares of Jersey-based CVC Capital Partners fell 7.5%. 

Playing Defense: A Blackstone analysis in March argued that the $1.8 trillion private credit sector isn’t large enough to pose systemic risk, while the group’s President Jon Gray and one of Goldman Sachs’ private credit chiefs have both noted fund redemption caps are a feature, not a bug, designed to protect investors from fire sales. Morningstar researchers also recently found underwriting standards in the private credit sector “have remained disciplined.”