Morgan Stanley's North Haven private credit fund received requests for 11.4% of its shares against a 5% limit. Apollo Debt Solutions' requests eased to 14.7% from 16.8%, and management said the line is mostly investors asking again.
A redemption queue can look longer than it is. When a fund caps withdrawals, investors who were turned away one quarter often ask again the next, and their second request counts as new demand.
Apollo says that is what is happening at Apollo Debt Solutions, its non-traded business development company. Redemption requests in the third quarter reached 14.7% of shares, nearly three times the fund's 5% quarterly limit. But management said "the majority of Q3 requests reflect re-tendering of unfulfilled Q2 requests." In the second quarter, requests had reached 16.8%.
The arithmetic supports a smaller line of new sellers than the headline suggests. After a 5% payout in the second quarter, roughly 11.8% of shares went unfilled. If most of the 14.7% requested in the third quarter came from those same holders, fresh requests would account for less than half of the total, below about 7.4% of shares. That is still more than the fund will pay out in a quarter, but it is a slower build than 14.7% implies.
Morgan Stanley's North Haven private credit fund showed the same pattern without the easing. Third-quarter redemption requests there reached 11.4% of units against its 5% cap, the third consecutive quarter the fund has hit its limit. It prorated requests at 43.8%, which is simply the cap divided by demand: each investor seeking to exit received about 44 cents for every dollar they asked to withdraw.
These vehicles were built for this situation. Non-traded BDCs sold through wealth channels offer periodic liquidity rather than daily redemptions, and the quarterly cap is designed to keep a fund from selling loans at distressed prices to meet withdrawals. A capped quarter is the structure working as intended. A string of capped quarters shows investors who want out faster than the structure allows.
Pressure is coming from borrowers as well. Mercer Advisors, the wealth management firm, priced a $1.65 billion syndicated loan on at 2.75 percentage points over the Secured Overnight Financing Rate, sold at 99.75 cents on the dollar. The loan, arranged by Oak Hill Capital and Goldman Sachs, replaces about $1.6 billion of private credit debt held by vehicles managed by KKR, Ares, BlackRock and Apollo. It is expected to save Mercer about $29 million a year in interest. That puts Apollo on both ends of the week's private credit news: managing a fund with a redemption queue, and losing a performing loan to the bank market.
The fourth-quarter tender is the test of Apollo's description. If requests keep falling as the queue from earlier quarters is paid down, the fund is working through a backlog. If they stay near current levels, new investors are joining the line faster than old ones leave it.