Morgan Stanley caps private credit fund withdrawals again as 11% seek exits

Morgan Stanley has once again imposed limitations on withdrawals from its $7 billion private credit fund, marking the third consecutive quarter with such restrictions, as reported by Reuters. The fund capped withdrawals at 5% of shares for the third quarter, after investors submitted redemption requests amounting to 11.4%, according to a shareholder letter.

This level remained consistent with the prior quarter. Overall, repurchases across three periods in September will total approximately $479 million. The majority of the latest requests originated from investors who had previously faced withdrawal limitations during the previous two repurchase periods. The ongoing restrictions arise as private credit managers grapple with investors attempting to withdraw funds from the $1.8 trillion market.

While redemption requests in major funds have decreased in the latest quarter, they remain elevated. Morgan Stanley joins major asset managers like Blackstone and BlackRock in continuing to restrict withdrawals from certain private credit vehicles. Fund managers are still managing a backlog of around $15 billion in redemption requests following a surge in demand for withdrawals over the past year.

Concerns among investors have included private credit underwriting standards and lenders' exposure to older software investments, as per the report. Private credit funds typically offer periodic redemption opportunities for shares, subject to limits to prevent forced asset sales when withdrawal requests surge. The structure means that investors may receive only a portion of their requested amount when redemption demand surpasses a fund's stated limit.

A different Morgan Stanley fund with less than $1 billion in total assets also restricted withdrawals, after investors requested redemptions representing about 7% of its shares. The latest figures indicate that withdrawal pressure continues to persist in various parts of the private credit market, despite a broader decline in redemption requests during the quarter.