Ares caps withdrawals at private credit fund after redemption requests surge

By Arasu Kannagi Basil and Isla Binnie

March 24 (Reuters) - Ares Management ARES.N on Tuesday became the latest alternative asset manager to cap investor withdrawals at a private credit fund following a surge in redemption requests.

Investors in Ares' $22.7 billion Ares Strategic Income Fund (ASIF) sought to withdraw funds amounting to 11.6% of outstanding shares in the first quarter, according to a regulatory filing. The fund said it plans to honor repurchase requests on 5% of the shares, or $524.5 million.

The move is the latest sign of investor stress in one of Wall Street's hottest areas, which has come under pressure in recent months with questions about lending standards, a pullback in markets and unease over the economic disruptions caused by the Iran war. Ares' decision mirrors actions at rivals including Apollo Global APO.N and BlackRock's BLK.N HPS Corporate Lending Fund to cap redemptions at 5%. Some managers, including Blackstone BX.N, have bought back more than 5% of fund shares.

Analysts say private credit funds are facing their first litmus test, and how they navigate the next several quarters will likely shape their relationships with investors for years to come. Some on Wall Street have drawn parallels to the redemption wave that hit non-traded U.S. real estate income trusts a few years back, when valuation jitters spooked some investors. Many analysts say the withdrawal wave shows no sign of abating.

"While we expect redemptions to remain elevated over the next few quarters, there is now a healthy precedent for prorating redemptions," Evercore analyst Glenn Schorr said.

FUND DEFENDS WITHDRAWAL LIMITS

ASIF said in a letter to shareholders that most of the requests to withdraw money "were made by a limited number of family offices and smaller institutions in select geographies," which it said represents less than 1% of the fund's more than 20,000 shareholders.

The fund's decision to use the withdrawal limit "aligned with what we believe are the best interests of the fund and all of our stakeholders," the letter said.

Shares of Ares, which managed roughly $623 billion in assets at the end of 2025, fell 1% on Tuesday. They are down 36% so far this year.

ASIF, which was launched in 2022 and focuses on illiquid private credit investments, said that no loans in its portfolio were on non-accrual status, a closely watched category used when borrowers pay late or prompt doubts they will pay.

The fund, which had gross inflows of roughly $708 million in the first quarter, said it has access to cash, including about $5 billion in undrawn capacity across committed debt facilities.

"We believe periods of market dislocation have historically created some of the most attractive opportunities in direct lending," ASIF said in the letter.

BUSINESS DEVELOPMENT COMPANIES UNDER PRESSURE

Business development companies, or BDCs, raise money in large part from retail investors and use it to extend loans to midsized companies. Investors have pulled billions of dollars from such investment vehicles in recent months amid a barrage of negative headlines around the roughly $2 trillion private credit industry.

Non-traded business development companies, like ASIF, typically promise they will allow investors to sell shares back to the company quarterly as long as aggregate repurchase requests do not exceed 5% of the outstanding shares. Larger repurchase requests can threaten to create cash strains at BDCs at a time when investor interest has started to ebb following years of strong demand.

Analysts have said the move by asset managers to limit withdrawals at 5% is the right decision for the firms, as doing so can limit the risk of large cash drawdowns or forced asset sales.

"We believe adhering to the cap appropriately balances the interests of new, existing and redeeming shareholders at (net asset value) NAV," Piper Sandler analyst Crispin Love said.

Asset managers typically own more liquid securities in the fund as well as undrawn capacity on bank lines to manage redemptions.

Apollo Global's APO.N $25 billion private credit fund, Apollo Debt Solutions, also capped redemptions at 5% on Monday after investors sought to withdraw funds equivalent to roughly 11.2% of its outstanding shares.

Investment bank RA Stanger, which closely monitors private market investments, said in a market update that business development companies raised 43% less from investors in February than in the same month last year.

Investment firm Sixth Street said last week the BDC sector was set for a reckoning and could need years to work through the "intense yet warranted reset."