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According to a recent piece by Financial Times, Apollo’s flagship private credit fund just met less than 30% of Q2 redemption requests.
For background, Apollo Debt Solutions is a $15bn BDC marketed to wealthy individual investors. In Q2, investors tried to pull $2.4bn out, which works out to about 17% of the fund’s value. Apollo capped redemptions at 5% and honored less than 30% of what was requested. In context, Q1 redemption requests were 11%. So, this is getting worse, not better.
Zoom out, and it’s not just Apollo. Across nine major funds the FT tracks, investors tried to pull nearly $15bn in Q2. Those funds manage roughly $200bn combined and met less than 40% of withdrawal requests.
The main concern driving outflows is exposure to PE-backed software companies, which are facing real questions about their revenue stability as AI eats into their businesses. Interestingly, the FT notes public markets have rallied and the loan selloff has moderated, yet redemptions are still accelerating.
Wall Street analysts expect redemption pressure to continue through the rest of the year, though some think we’re approaching a peak.
The part I keep coming back to, though, is what hasn’t hit yet. In other words, a meaningful chunk of private credit loans originated during the 2021 and 2022 rate environment are floating-rate, and a lot of stressed borrowers have been kicking the can through PIK toggles rather than paying cash interest. That defers the pain, but doesn’t make it go away. You’re essentially accruing interest onto the principal of a borrower who already couldn’t service their debt. When those loans mature over the next 12 to 24 months, refinancing into a still-elevated rate environment is going to be ugly for a lot of names, especially the PE-backed software companies everyone is already worried about. Doesn’t help that Warsh and the Fed are indicating rate hikes this year.
Curious to hear others’ thoughts, especially if you’re in the industry.