After pouring billions into private debt, many investors want to

The exodus in private credit is prompting fresh scrutiny of the sector’s less-liquid structures and its rapid expansion into the retail wealth space.

black stone It is the latest fund manager to be hit by a surge of requests from investors to pull out of its flagship private credit strategy.

The asset manager said this week it will meet 100% of redemption requests at its giant $82 billion Blackstone Private Credit Fund, or BCRED, after investors tried to pull a record 7.9% of assets, or about $3.8 billion, from the fund.

That came later Blue Owl Capital Last month it said it was ending regular quarterly liquidity payments on its Blue Owl Capital Corp II fund, a semi-liquid private credit strategy aimed at US retail investors. A private credit specialist will instead shift to periodic payments of funds from asset sales, earnings and other strategic transactions.

This increase in redemption requests is now putting retail investors of the private market industry under close scrutiny and bringing into sharp focus the mismatch between non-publicly-traded, high-yield liquid assets and retail-style access.

Blackstone — the world’s largest alternative investment manager with $1.27 trillion in assets under management — said it was increasing its previously announced tender offer to 7% of total shares, in order to fully satisfy redemption requests by the firm and employees for the remaining 0.9%.

Blackstone chief operating officer and chairman John Gray acknowledged the risk of private credit institutions failing to recover and potentially gating investor money is “not profitable in the near term” for the sector.

But speaking to CNBC’s “Squawk on the Street” on Tuesday, Gray said individual investors and financial advisors understand the product “in most cases.”

“What people sometimes fail to recognize is that they are designed to be semi-liquid products,” Gray said. “The idea that there are caps is really a feature, not a bug, of these products. What you’re doing is trading a little bit of liquidity for a lot of income. That’s a trade-off that institutional investors have made for a long time.”

Shares of publicly traded alternative asset managers – including Blackstone and Blue Owl KKR, Ares Management And The Carlyle GroupAmong others – concerns over multiple pressure points in the sector have eased due to the spread.

These include fears of late-cycle loan quality, AI-related risks in software portfolios and further individual blow-ups after the First Brands and Tricolor explosions last year.

Low-adjusted loans are “a good place” to generate a premium for investors, Gray said, adding that he expects them to continue to outperform liquid loans.

The BCRED fund has returned 9.8% since inception in its main share class, indicating that, for now, the challenge remains in liquidity rather than performance. Gray said there has been “a ton of noise” around private debt in recent weeks, adding, “It’s no wonder investors are nervous.”

As the sector evolves towards the mainstream, the tricky balance of private credit while offering retail-like liquidity will be tested between delivering returns, Moody’s Ratings warned. In a recent commentary, Moody’s global head of private credit Mark Pinto said funds may need to hold larger volumes of more liquid, lower-yielding assets to account for a growing retail presence — which could prove a drag on returns.

Ultimately, regardless of the fund structure, the underlying assets remain liquid, said William Barrett, managing partner at Reach Capital. “The retail market should be aware of that and not invest in ETFs in these products,” Barrett told CNBC via email.

“Private markets inflows have been dominated by institutional markets for decades,” Barrett told CNBC via email. “It makes sense for our industry to offer our products to retail now but we should test it first with the HNWI (high net worth individuals) and mass-affluent segments instead of making a 180-degree shift to mass retail.”

Barrett said the industry must carefully select the right target markets for the right liquidity structures and the right underlying assets.

He noted that while there were no signs of underperformance in the credit space at the portfolio level, “it makes sense that semi-liquid products would experience liquidity pressure first.”

Man groupA London-listed global alternatives manager that has expanded its private credit activity in recent years, Said private credit loans originated with the “express intention” of holding to maturity.

“This lack of trading is a feature of the asset class, not a flaw,” Andrew Wayman, director of client portfolio managers at US Private Credit, and Jeshan Ashfawk, senior managing director and senior credit officer at US Direct Lending, said in a note on Tuesday.

The deleveraging pressure on private credit may be affected by another area of ​​weakness: exposure to software-services companies. Blue Owl is a significant direct lender to the sector, which has been shaken by concerns that rapidly advancing AI tools could destroy traditional SaaS business models.

“If retail inflows slow and outflows increase, particularly for managers who are more exposed to AI risks or whose capital bases have a significant retail component, this will be an additional headwind for the industry to face,” Weyman and Ashfawk noted.