Private credit giant Apollo Global Management capped withdrawals on Monday. As a group, retail investors were able to take out just 45% of the money they’d originally asked to withdraw. 

Escalating a well-publicized crisis in private equity and credit, Apollo is the sixth major asset manager this year to tell investors they need to slow down their withdrawal requests.

Apollo Debt Solutions, a non-publicly traded credit company with a net asset value of about $15 billion, received redemption requests exceeding 11% of its outstanding shares in the first quarter.

The fund enforced a 5% quarterly cap and returned roughly $730 million of the more than $1.5 billion in requests it received. Redeeming investors received less than half of the full disbursements they requested.

Private credit peers Blackstone and Blue Owl have also been restructuring their withdrawal policies under pressure. Apollo held its 5% withdrawal limit.

Apollo joins Blackstone, BlackRock, Blue Owl Capital, Morgan Stanley, and Cliffwater in gating investor withdrawals this quarter.

The industry sold these funds to individuals as a path to “democratization” of institutional-grade yields.

In fact, private equity (PE) and private credit companies merely democratized purchases by regular people who often didn’t understand that PE managers can choose the valuations of their assets with far less oversight and regulatory obligations than public fund managers.

Because the valuations of these assets occur privately, there’s no real-time price-seeking mechanism to determine the proper valuation of these assets. 

As such, PE managers typically mark-up their assets consistently, quarter after quarter, until they suddenly plunge in value during a crisis or liquidity crunch, such as the current Iran war or AI-induced layoffs.

Because it’s impossible to sell out of these credit and equity instruments on secondary exchanges, investors may only request redemptions quarterly.

However, funds typically cap total withdrawals at 5% of their net asset value per quarter. If more people want out than the cap allows, everyone gets a haircut on their redemption request.

The problem, therefore, is structural. The underlying loans are illiquid and artificially marked-up. The quarterly redemption window created an illusion of liquidity for a small number of withdrawal requests that doesn’t match the immense size of the assets.

This is seen particularly during any type of bank run-type scenario where withdrawal requests arrive en masse.

About 80% of traditional private credit investors are institutions, according to JP Morgan, yet many retail investors have joined them in recent years.

Main Street investors, who piled in chasing yields of 8% to 10%, have far less patience. 

PE giant Blue Owl, for example, drew roughly 40% of its over $300 billion in assets from individuals, according to Fortune.

Blackstone’s Private Credit Fund recorded a record 7.9% redemption request totaling nearly $4 billion. Blackstone actually raised its quarterly cap to 7% and injected $400 million of its own capital to help calm some of that panic. 

Equally alarming, BlackRock’s $26 billion HPS Corporate Lending Fund received $1.2 billion in withdrawal requests, or 9.3% of assets, and paid out $620 million. 

Morgan Stanley’s North Haven Private Income Fund received requests for over 10% of shares and capped payouts at 5%.

Cliffwater’s $33 billion flagship fund saw the worst of it. Investors demanded 14% of shares back. The firm slashed that in half to a 7% limit.

Blue Owl nearly went off the deep end. In February, the firm permanently halted quarterly redemptions from its retail-focused Blue Owl Capital Corp II.