Investor redemption requests at Apollo’s flagship retail private credit fund surged to 17 per cent of the vehicle’s value in the second quarter, underscoring fears of falling returns and rising stress in debt markets.
The firm’s $15bn Apollo Debt Solutions fund pitched to wealthy individual investors reported roughly $2.4bn of withdrawal requests in the most recent period. The fund met less than 30 per cent of the withdrawals it faced in the quarter, capping redemptions at 5 per cent of the value of the vehicle.
The Apollo fund, which has an investment portfolio worth nearly $26bn, had been hit with withdrawal requests of 11 per cent in the first quarter.
The rising withdrawal requests at the fund signal that the broader investor exodus from private credit has not abated, even as public markets have rallied and a sell-off in loans to private equity-backed software companies has moderated.
The funds have been a significant fundraising source for private investment groups, offering lucrative fees for the asset managers. However, private credit has faced scrutiny over its lending to the software industry, given the risks companies face from advances in AI.
Investors have sought to pull nearly $15bn from nine major funds tracked by the FT in the second quarter. The funds, which manage roughly $200bn across their investment portfolios, have met less than 40 per cent of the withdrawal requests.
Analysts across Wall Street expect the pace of redemptions from these private credit vehicles, known as business development companies, to continue to face pressure this year with some predicting redemptions could soon peak.
Apollo said it recorded $300mn of new commitments to the fund, which it said would limit net outflows to $400mn in the quarter. It also noted that redemption requests were concentrated from investors in its offshore funds, typically pitched to non-US investors.
“The vast majority of investors in the fund continue to choose to remain invested,” the fund said in a letter to shareholders. “We have a fiduciary duty to act in the best interests of all fund investors. Adhering to our stated targets — and delivering on them — is important in our role as long-term stewards of capital.”
The Apollo fund, like most of the vehicles operated by its competitors, is relying on a gating mechanism that allows the investment manager to restrict redemptions when they eclipse a 5 per cent threshold.
John Zito, co-president of Apollo Asset Management, told a conference hosted by Morgan Stanley earlier this month that the retail-focused funds were performing as designed.
“The nice thing is, is no matter how much you’ve attacked the private debt business, there’s been no run. There’s been no SVB,” he said, referring to the 2023 failure of Silicon Valley Bank when depositors raced to pull capital from the lender. “There’s been no financial institution failing. The structure is right.”
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