Pimco executive: Wealth management institutions are withdrawing more than $14.5 billion in private credit or have been trapped for several quarters

The Zhitong Finance App learned that after several large direct loan funds suddenly restricted investors' redemptions earlier this year, wealth management institutions were still coping with the impact and began withdrawing from the private credit market, while stepping up efforts to find alternative investment products.

Christian Strack, president of Pimco (Pimco), said in an interview on Tuesday: “Demand for direct loan private credit alternatives is increasing dramatically, especially because wealth management distributors are unwilling and unable to sell direct loan private credit products to retail investors.”

In the first quarter of this year, some of the world's largest private credit management institutions were forced to prevent investors from withdrawing funds from semi-liquid private credit funds known as business development companies (BDCs) after market concerns about some private credit funds holding large amounts of exposure to software companies threatened by artificial intelligence (AI) heated up sharply. According to media estimates and data released by Robert A. Stanger & Co in July, more than $14.5 billion of investor capital is currently trapped in more than 10 funds.

Strack said that many investors are still waiting for their funds to be returned, and they may have to wait a while before they can get their funds back. He said, “Most BDCs currently have redemption queued funds equivalent to about 15% of the assets under management, and this will take a few quarters to be digested.”

With assets under management of $2.26 trillion, Pimco is one of the world's largest credit investors. Several of the company's executives have recently voiced concerns about the general health of the $1.8 trillion private credit industry. The industry's underwriting standards and asset quality have been closely scrutinized by regulators in recent months.

Some wealth management agencies are currently changing the language used to describe investing in private credit and private equity funds, replacing the term “semi-liquid” (semi-liquid) with definitions such as “conditional liquidity” (conditional liquidity) or “periodic liquidity” (periodic liquidity), in order to better prepare investors for possible future redemption crises. In this case, investors' funds may be locked due to redemption restrictions.

Strack also pointed out that there is a large backlog of problematic loans in some BDCs, particularly software industry loans due in 2027 and 2028. The software industry will face huge refinancing challenges over the next few years. According to S&P Global Market Intelligence estimates, syndicated loans totaling $386 billion will expire in 2028 and 2029, respectively.

“The industry will have to deal with these loans for years to come,” Strack said. He expects the default rate to remain high during the same period, “which will keep investors on the sidelines in this field for quite some time.”

Strack also said that publicly traded non-investment-grade bank loans often provide higher returns than those offered by some private credit management agencies, and that Pimco is cooperating with more banks and non-banking institutions to acquire such assets for customers. He pointed out, “If you are a retail investor, or an investor of any kind, then it is entirely reasonable to withdraw from illiquid assets and get higher returns from more liquid assets.” Meanwhile, Pimco remains active in open market debt issued by some of the largest private credit institutions, including Blue Owl Capital Inc.