PANIC OUT OF PRIVATE CREDIT SPREADS- PARTNERS GROUP FALLS 17%, BLACKSTONE DOWNGRADED, CLIFFWATER HIT

Ajouté : 2026-06-03

[00:00:00]I've been covering the private credit and private equity story on this channel since last year. I've been warning about this since uh the triricolor and first brands collapse back in December. And even with a 41% increase in withdrawal requests from investors in non-traded private credit vehicles during the first quarter, the private credit heads and the Wall Street mouthpieces are still out assuring everybody that the problems inside of private credit and private equity are isolated, that there's no systemic risk or risk of contagion. Well, if you missed what's been going on for about the last 48 hours, let me fill you in here. Cliffwater yesterday came out and disclosed that redemption requests in its flagship private credit fund surged to approximately 17% of the fund's assets. That fund reportedly manages about 31 billion and the withdrawal request exceeded 5 billion. What did the fund do? Well, they capped the redemptions at 5% and didn't allow the investors to get all their money out. Think about the size of that run on that fund for a quick second. The investors wanted out at more than three times the amount of the liquidity that the fund was willing to provide. And what makes the Cliffwater redemption story, I think, so crucial is that Cliffwater markets their funds primarily to retail investors, private wealth, not institutional investors.

[00:01:45]They've been out, you know, as one of the fastest growing managers, uh, investment managers in the space among, say, popular choices for wealth managers placing their private client funds. And then yesterday also the Wall Street Journal came out uh and said that Moody's credit reporting agency has changed its outlook to negative on a Black Rockck private credit fund because of rising defaults in the private corporate loans made by the funds. So that was yesterday's news. But today things really escalated. Shares in Partners Group, a Swit a Swiss asset management giant. They're active in private equity, private credit, infrastructure, and real estate markets.

[00:02:35]They plunged 17% to a 52- week low. They're based out of Zurich, Switzerland. They have approximately $185 billion under management. And they came out and said that investor redemption requests reached 9.8%. 8% of their $ 8.6 billion private equity fund. Only about 62% of the redemption requests were fulfilled because the fund once again only allows withdrawals of 5% per quarter. The Financial Times says that the partner group pioneered the industry's efforts to court affluent individuals as opposed to just institutional investors. So similar to uh the US cliffwater group and the partners group said today that redemption limitations are an indispensable feature of private markets investing to protect long-term investors in an inherently illquid asset class. I wonder how many of those investors really understood uh the concept of in of inherently illquid when they bought in. And even more importantly, I wonder how many of those fund managers properly explained it to them. Don't forget to hit that subscribe button for me and consider signing up for the risk map newsletter. I'll leave the link in the description below so you can go and take a look at it. Understand this is not going to stop. This is a self-fulfilling negative feedback loop now because investors across the world, not just here in the US, are sitting there and watching the panic and saying, you know, I better go and get my money out also.

[00:04:13]And guess what happens at the same time that the long-term institutional investors like the pension funds and the life insurance companies who have a longer time horizon sitting back thinking this is a big joke. The value of these funds are dropping and the assets will eventually have to be liquidated to meet these redemption demands.

[00:04:35]And this partners group story folks I think is much bigger for two reasons.

[00:04:39]First, uh, the Partners Group news caused a chain reaction here in the US.

[00:04:46]Private credit companies, KKR, Carlile Group, Aries Management, Blackstone, they're all selling off. So, why did a private equity fund in Switzerland immediately cause investors to sell American private credit firms? meaning why would KKR fall and Blackstone and Aries and Blue Carile none of those firms announced any major problems to speak of today and that's that's for this reason because the markets are no longer evaluating these risks individually the markets are beginning to evaluate them collectively and not just domestically here in the US but internationally so investors looked at cliff water they looked at the partners parters group and they reached the same conclusion. This is not isolated any longer. And the second reason from my perspective this is a huge deal is that the partners group they're a private equity firm okay in Switzerland. So the redemptions have now spread from private credit into private equity. Let me explain uh briefly what the difference is. Private credit lends monies to companies like these BDCs right the business development companies. So the risk uh is that the borrower stops paying and defaults rise. But private equity funds, they don't lend to companies. They buy companies. They take companies private. And in many cases, they hold these companies on their books for several years um hoping to turn a profit and eventually sell them. So, we've been hearing for the last, let's say, year now by all the talking heads that the problem is limited to private credit and a few bad loans, a few bad portfolios. But this Partners Group news confirms that investors are now redeeming from both private equity and private credit. And this run, let's call it what is, it's basically a run on these banks. Okay? uh it's not only broadened uh internationally but it's also broadened out again across the spectrum from private credit into private equity and that's the most important I think development from the last couple of days of stories not the gate not the withdrawal limit not even the stock decline for the companies it's the shift from isolated events to this broader concern and the signals sent by Moody's uh with the Blackstone downgrade means that this outlook is getting worse not better folks. Okay, so it's notice again the sequence. I always talk about the sequence of events. Defaults start rising. Investors want their money out.

[00:07:33]Managers are restricting the withdrawals and gating redemptions. The stocks are selling off. Okay. And that's uh let's say you know all one chain reaction a 17% redemption rate at Cliff Water is not normal. A 9.8 redemption request rate at the partners group over in Zurich Switzerland is not normal. Moody's turning negative because defaults are rising is not normal. Okay. and seeing multiple US private credit stocks decline together because of developments at an unrelated European private equity firm is certainly far from normal. Okay?

[00:08:17]And you've if you've watched this channel for any length of time, you've heard me discuss this exact risk repeatedly. Okay? So, I'm going to stay on top of this. If you enjoyed the content, leave me a like on the video.

[00:08:30]Please don't forget to subscribe to the channel. Go look at the risk map newsletter. Leave me your thoughts and comments on this. And with that being said, I'll talk to you all soon. Bye.