Stress is building in private investment markets, and it’s showing up in a telling way: the widening gap between what funds claim their assets are worth and what investors actually receive when they try to cash out.
This week, Cox Capital Partners launched offers to buy shares in non-traded business development companies managed by Apollo, Ares Capital, and BlackRock’s HPS Investment Partners. The offers came at discounts ranging from 15% to 30% below the funds’ net asset values as of the end of May. In practical terms, that means investors in the Apollo fund were offered just 70 cents for every dollar of stated value, HPS investors were offered 75 cents, and Ares holders were offered 85 cents.
The total dollar amount involved is relatively small — about $31 million combined — but the pricing sends a much larger message about the state of private markets.
The timing is significant. Fitch Ratings reported that redemption requests climbed at 10 of the 16 non-traded business development companies it monitors during the second quarter, with the average reaching 10.3% of shares outstanding, up from 9.7% the previous quarter.
These funds typically cap quarterly withdrawals at 5% of net asset value. When investors request more than that, payouts are spread proportionally among those seeking to exit — meaning some investors could wait multiple quarters before fully getting out. For those unwilling to wait, a secondary market exists, but it comes with a significant price penalty.
That penalty is becoming increasingly difficult to overlook. Publicly listed business development companies are trading at roughly 75 cents on the dollar on average. In some cases, public and private funds run by the same management firms hold very similar underlying investments, meaning essentially the same assets can carry very different valuations depending on which type of fund holds them.
The pressure isn’t limited to private credit. Partners Group disclosed that withdrawals from certain mature evergreen funds are expected to continue for several more quarters, after the firm capped redemptions from an $8.6 billion private-equity fund last month. Clients withdrew $3.8 billion in the first half of the year, with three mature evergreen strategies responsible for 79% of those outflows.
Partners Group cautioned that ongoing trends could reduce asset growth by 1% to 2% over the next 18 months, and that outflows from those funds could reach between $10 billion and $20 billion in a worst-case scenario. Notably, this warning came even as the firm attracted $16 billion in new client commitments — illustrating the dual reality of private markets, where new money continues to flow in while older investors struggle to get out.
Regulators are also trying to map where the risks lie. European supervisors seeking a clearer picture of banks’ exposure to the roughly $2 trillion private-credit market have reportedly run into resistance from U.S. authorities when requesting more detailed data.
On the surface, the numbers appear manageable. Euro zone banks hold an estimated €62.5 billion in private credit exposure globally, which amounts to just 0.2% of their total assets. Insurers hold approximately €211 billion, and pension funds hold about €52 billion.
However, regulators are concerned that these headline figures don’t capture the full web of financial connections beneath the surface. Private-credit assets can pass through multiple layers of the financial system, linking banks, insurers, pension funds, and asset managers through instruments such as collateralized loan obligations, leveraged lending, and reinsurance arrangements.
A stress test conducted by the European Central Bank found that direct losses from a severe private-credit shock would be manageable. The greater danger, the exercise found, would come from secondary effects — broader market selloffs and valuation losses rippling through the financial system.
Taken together, these developments point to a growing concern: as private markets expand and become more deeply connected to the broader financial system, limited liquidity and hard-to-verify valuations could make any future stress far worse when large numbers of investors try to exit at the same time.
