Bonds issued by semi-liquid private credit funds have experienced a sharp decline in value since early February, reaching their weakest point in a year. This trend indicates that investors were anticipating stress in the sector even before a recent surge in redemption requests, according to Fourier Asset Management, a bond trading hedge fund. Fourier takes long and short positions in the overall credit market. The firm was founded by Orlando Gemes, previously a credit manager who began trading bonds in 2000.
Market jitters have intensified this month, with major U.S. banks tightening lending and funds capping withdrawals. Mounting concerns over valuations, transparency, and the overall economic health have prompted some investors to exit the private credit sector. Alternative asset managers have recently limited withdrawals from private credit funds following a surge in redemption requests.
The difference between bond yields from five major interval funds and comparable government bonds increased before some of these funds faced high redemption requests, Fourier reported. This included bonds issued by funds of Oaktree, BlackRock, Blue Owl, Blackstone, and Ares Capital, all of whom declined to comment. These bond spreads, viewed as an indicator of bond risk, narrowed in the summer of 2023 and earlier this year before widening sharply from early February onwards.
Fourier’s analysis, which extended just beyond March 8, revealed that the bond spread widening signals increasing investor anxiety about private credit. Oaktree’s Strategic Credit Fund, for example, has seen its credit bond spreads widen to around 250 basis points, near the highest levels since April 2023, according to Barclays and S&P Global Market Intelligence data. BlackRock’s HPS Corporate Lending Fund saw its bond spreads widen to as much as around 258 bps in March.
