Hedge fund billionaire Ken Griffin has questioned whether wealthy individuals truly understand the risks of investing in private credit, warning they may struggle to access their money in a downturn.
Griffin, founder of $67 billion hedge fund Citadel and trading firm Citadel Securities, made the comments in an interview with the Financial Times, as the private credit industry faces mounting redemption pressures and growing concerns over bad loans.
Liquidity Mismatch At The Core
“The real issue here is the liquidity mismatch between the wealthy investors and the duration of the investments,” Griffin said. “We live in a world where investors have become accustomed to having immediate liquidity for their investments — investing in private credit is a different story.”
Griffin also questioned whether wealthy investors fully grasped what they were buying into. “Retail was viewed as a phenomenal channel from which to raise assets,” he said. “But did the retail investors really understand the nature of the investment they were making?”
The private credit industry comprising funds that make direct loans to private equity-owned companies, has more than $3.5 trillion in assets, according to the Alternative Investment Management Association.
Firms including Blackstone (NYSE:BX), Apollo Global Management (NYSE:APO), KKR & Co. Inc. (NYSE:KKR), and Ares Management Corp. (NYSE:ARES) have aggressively expanded into semi-liquid funds targeting wealthy investors in recent years.
Cracks Beginning To Emerge
Early signs of strain are already emerging. Blue Owl Capital (NYSE:OWL), which aggressively targeted retail investors, has limited withdrawals from its two flagship funds amid billions in redemption requests. BlackRock Inc. (NYSE:BLK) similarly limited withdrawals from its $26 billion HPS Corporate Lending Fund after redemption requests surged to 9.3% of net asset value.
JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon, speaking at the Norges Bank Investment Management Conference, warned that when a credit recession hits, losses could be worse than expected. “I guarantee you not all 1,000 of them are brilliant,” he said, referring to the more than 1,000 private credit firms now operating.
Federal Reserve Chair Jerome Powell, however, said the turmoil does not appear to pose a broader systemic threat, describing it as “a correction going on.”
Fundraising Continues Despite Turbulence
Despite the stress, capital raising has not stalled. Adams Street Partners raised $7.5 billion for its third private credit vehicle, targeting sponsor-backed middle-market companies, while KKR & Co. (NYSE:KKR) and Capital Group are jointly launching a public-private hybrid credit fund in Asia later this year, billing it as a “more liquid, cheaper, and more transparent” option for wealth management clients.
Goldman Sachs president John Waldron captured the broader concern plainly. “Those retail investors, I think, have the perception of more liquidity than is the reality,” he said at a recent Semafor event in Washington.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image via Shutterstock
Login to comment