March 27 (Reuters) – A private credit fund owned by Oaktree Capital Management has decided to honor the entirety of 8.5% in redemption requests it received in the first quarter, according to a regulatory filing on Friday, making it the latest asset manager to decide against capping withdrawals.
It will repurchase roughly 13.9 million, or 6.8% of the outstanding shares from investors in the Oaktree Strategic Credit Fund (OSC), while Oaktree’s parent Brookfield will purchase another 1.7% of shares to help the asset manager meet 100% of the redemption requests this quarter.
Several asset managers have capped redemptions at the usual 5% quarterly limit following a recent spike in redemptions in the wake of negative headlines around private credit that have drawn intense scrutiny to the roughly $2 trillion industry over lending standards, valuations and transparency.
Some, such as Blackstone, on the contrary, have decided to honor 100% of redemptions in the first quarter to allay investor concerns.
Redemption requests at Morgan Stanley’s North Haven Private Income Fund, Apollo Debt Solutions BDC, and Ares Strategic Income Fund each exceeded 10% of shares in the first quarter. All of them enforced the typical 5% quarterly limit.
Non-traded business development companies, like Oaktree Strategic Credit Fund, typically offer quarterly liquidity to investors through tender offers of up to 5% of shares.
“CORRECTION RATHER THAN A CRISIS”
The confidence around private credit – broadly defined as lending directly to companies outside the traditional banking system – has undergone a shift after high-profile bankruptcies of First Brands and Tricolor stoked investor concerns that more “cockroaches” could emerge.
JPMorgan CEO Jamie Dimon last year had raised eyebrows by warning that more “cockroaches” could emerge from pockets of Wall Street’s multitrillion-dollar credit machinery.
Investor sentiment has also taken a hit as fears grew that AI-related disruption to software companies could leave the private credit industry vulnerable, as it has been a key lender to the technology sector.
Oaktree said that while the private credit market is undergoing a period of calibration following several years of rapid growth, the shift was part of a normal credit cycle rather than broad-based credit deterioration.
“Ultimately, we believe the current environment represents a correction rather than a crisis. The repricing now underway in software and broader private credit was, in many respects, already in motion before recent events,” the fund said.
“We believe there will be growing dispersion within the asset class,” it said, echoing views from other asset managers.
DIVIDEND RESET
The fund has also decided to reset the monthly dividend to 16 cents per share from 18 cents. Oaktree said the move reflects the current earnings environment – characterized by lower rates and tighter credit spreads on income.
“As Milton Friedman observed, there is no free lunch: the cost of maintaining dry powder today is accepting lower income in the short term,” the fund said in a shareholder letter.
The fund had $1.8 billion of available liquidity from cash and undrawn credit facilities as of March 23.
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shinjini Ganguli)
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