Private credit investors reject deep discounts despite redemption pressure

Investors seeking liquidity from private credit vehicles are rebuffing deep discounts, even as redemption queues put pressure on the sector, according to a Bloomberg report. Cox Capital Partners extended an offer to purchase up to $90m in shares from investors in five non-traded business development companies (BDCs), with discounts averaging approximately 26%.

However, the response was minimal, with investors submitting less than $5m in orders before the deadline, according to unnamed sources. The BDCs in question are managed by HPS Investment Partners, Apollo Global Management, Ares Management, and Blue Owl Capital. Discounts varied among the vehicles, with some receiving no offers at all, the sources revealed.

The limited participation indicates that, while liquidity concerns persist, many holders prefer to remain invested rather than accept a significant reduction in the value of their holdings to exit immediately. John Cox, CEO of Cox Capital, expressed disappointment at the firm's lack of demand but anticipated a rise in investor participation in secondary transactions as the market becomes more accustomed to the concept.

Cox is also considering adjusting pricing for future offers based on market conditions. Moving forward, Cox plans to expand its strategy to include interval funds, another type of private investment structure with limited liquidity, targeting entities such as Cliffwater and Variant Investments, a person familiar with the matter stated.

The potential opportunity is substantial, as investors attempted to withdraw nearly half of their shares from Variant's Alternative Income fund in the latest quarter, while roughly 17% of investors in Cliffwater's flagship interval fund sought redemptions.