Ares Management‘s (NYSE:ARES) private credit challenges mounted in February, with one of its funds posting the deepest monthly loss in its history as the sector weakened.

The Ares Strategic Income Fund (ASIF), which managed close to $23 billion in assets as of January, declined 0.68% last month in the worst setback since it was launched in 2023, according to a Bloomberg report. Still, ASIF has delivered annual returns of 10.6% since inception through the end of January, according to the outlet.

The Morningstar LSTA index, which tracks publicly traded leveraged loans, fell by 0.8% in February, reflecting broader market challenges.

Withdrawals Capped

Reports of the ASIF loss comes after Ares announced it would limit withdrawals from the fund after facing a significant increase in redemption requests. The fund, which targets affluent investors, saw redemptions rise to 11.6% in the first quarter, prompting the firm to cap outflows at 5%.

The fund received $1.2 billion in redemption requests during this period, fulfilling $524 million, which is slightly over 40% of the total requests, the Financial Times reported.

Ares explained the redemptions were initiated by a small group of family offices and smaller investors, collectively representing less than 1% of the fund's more than 20,000 investors. The fund's assets, bolstered by leverage, comprise loans and securities valued at $20.8 billion, according to the publication.

Ares, Blackstone, KKR Stocks Slide

Ares stock has tumbled 33% year-to-date, while Blackstone Inc (NYSE:BX) and KKR & Co Inc (NYSE:KKR) are each down 29%. Meanwhile, Apollo Global Management (NYSE:APO) stock has dropped 24% this year, while Carlyle Group Inc (NASDAQ:CG) has slid by about 21%.

Blackstone's flagship private credit fund, BCRED, also experienced its first loss in over three years last month. The 0.4% decline comes amid growing investor concerns about the liquidity pressures within the sector, Reuters reported this week.

Despite the decline in performance, BCRED has delivered a 9.5% annualized total return since its inception for Class I shares. It outperformed the leveraged loan market by 100 basis points this year.

Lending Restrictions

Recently, banks and asset managers have issued warnings or restricted lending in their private credit portfolios amid signs of increased stress in the market.

Morgan Stanley (NYSE:MS) curbed redemptions after investors sought to withdraw nearly 11% of shares from its North Haven Private Income Fund. JPMorgan Chase & Co. (NYSE: JPM) has begun restricting lending to software companies in its private credit funds, and BlackRock Inc (NYSE:BLK) has limited withdrawals from its $26 billion HPS Corporate Lending Fund after redemption requests surged to 9.3% of the fund’s net asset value.

While these restrictions have rattled some investors, proponents argue that these measures are necessary. Louis Navellier, CIO of Navellier & Associates, notes that the "Blackrock 5% quarterly redemption limit is written into the Private Credit fund's charter" specifically to protect long-term value.

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