Ares Management's flagship private credit fund, the Ares Strategic Income Fund, has faced a wave of investor withdrawals, with outflows exceeding $1.5bn (£1.18bn) in Q2. This represents 14.4% of the fund's total value, standing at approximately $11bn (£8.3bn), and marks a significant increase from the 11.6% recorded in the preceding quarter.
Notably, despite the substantial demand for withdrawals, the fund fulfilled only a third of these requests, adhering to its pre-established redemption limit of five per cent of its value. Ares attributes the majority of outflows to investors outside the US, specifically "a limited number of smaller, primarily non-US institutions and family offices," echoing a trend observed by peers such as Apollo over the past nine months.
According to an update to shareholders, Ares has chosen to limit redemptions, claiming it is in line with their assessment of the best interests of all stakeholders. The fund boasts a one-year return of 8.2%. However, this scramble for withdrawals follows similar actions by major players; Morgan Stanley will continue to 'gate' its North Haven private income fund due to soaring redemption requests, while Apollo noted withdrawal requests from one of its funds have swelled to nearly 17%.
As the industry transitions towards focusing on wealthy retail investors, liquidity mechanisms within semi-liquid funds are facing scrutiny. These vehicles promise no formal end date and regular withdrawals, enticing retail investors with access to illiquid assets. However, rising withdrawal requests, now exceeding promised thresholds, expose potential vulnerabilities in these fund structures.
The implications of this trend extend beyond the private credit market, potentially affecting the broader financial landscape. Although Ares shares have declined 30.1% since January, trading at $116.1, the direct impact on the FTSE 100 or typical UK household finances may not be immediately apparent. Nevertheless, for UK investors with exposure to similar funds, either directly or through wealth managers, these events highlight the importance of understanding liquidity terms in their investments.