Brookfield Oaktree Holdings LLC‘s (NYSE:OAK)Oaktree Capital Management saw redemption requests in its private credit fund drop by nearly half in the second quarter.
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The Oaktree Strategic Credit Fund received withdrawal requests equal to 4.5% of its assets, remaining under its 5% threshold, compared with 8.5% in the first quarter, a period during which Brookfield Corp. provided $80 million to help fund redemption requests, Bloomberg reported.
As a result, the approximately $7 billion vehicle processed all investor redemption requests without restrictions.
"In the current market environment, we believe investors are becoming more selective in evaluating managers and portfolios," the Oaktree fund told shareholders. The firm said investors are increasingly prioritizing managers with proven underwriting expertise and a track record of managing through changing market conditions.
The fund generated an annualized return of 8.8% over the past three years. As of March 31, loans on non-accural status, where borrowers stopped making debt payments, accounted for just 0.08% of the portfolio at cost, Bloomberg noted, citing a shareholder letter.
Oaktree's Peers Still See Elevated Redemptions
Meanwhile, Oaktree's peers across the private credit industry have still been facing larger cash-out demands.
Earlier this month, Blackstone Inc. (NYSE:BX) has restricted quarterly withdrawals in its $79 billion Blackstone Private Credit Fund after investors asked to redeem a larger slice of shares in the second quarter.
Blackstone’s redemption requests reached about 10% of fund shares for the quarter, up from 7.9% in the prior period, Reuters reported. The fund applied a 5% cap, a common limit for non-traded vehicles that offer periodic buybacks.
The flagship private credit fund of Cliffwater LLC capped redemptions at 5% in the second quarter after investors sought to redeem approximately 17% of the fund’s shares.
Partners Group is restricting investor withdrawals from its $8.6 billion Global Value SICAV fund after redemption requests exceeded 5% of the net asset value, a move that rattled sentiment across private markets.
The firm pointed to instability across open-ended vehicles since early last year, beginning in private credit and later affecting private equity, Reuters reported.
BlackRock, Ares Management, Morgan Stanley and Barings have also limited redemptions from private credit funds.
Oaktree's View On Private Credit
Speaking on Oaktree's most recent The Insight podcast, Brook Hinchman, head of North America for Oaktree's Opportunistic Credit Strategy, and Matt Wilson, co-portfolio manager for its Special Situations Strategy, identified specific areas of concern within private credit.
Hinchman said portions of the direct lending market face an asset-liability mismatch, particularly interval funds and private business development companies that offer periodic redemptions despite investing in illiquid loans.
Enterprise software represents another pressure point. Hinchman argued that advances in artificial intelligence are lowering barriers to entry that historically protected software businesses from competition.
"What you've seen is a situation where the primary barrier to entry for enterprise software… has come down meaningfully," Hinchman said.
Despite the risks, neither executive argued that private credit itself is fundamentally broken. Instead, they believe the market's dislocations will reward investors with restructuring expertise, scale and flexibility.
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