<p>According to comprehensive reports from foreign media, as investors' concerns about the impact of AI on the loan quality of software companies intensify, private credit funds are facing a wave of redemption requests. However, following BlackRock's decision to limit withdrawals last week, this move was quickly emulated by other management institutions. Investment bank Morgan Stanley and private credit giant Cliffwater announced that due to redemption requests in the first quarter far exceeding the fund's allowable limits, they would restrict fund redemptions for their large private credit funds. As a result, Morgan Stanley's stock price plummeted by 4%; other alternative asset management giants also faced sell-offs, with Apollo Global Management, KKR, and Ares Management all dropping over 3%.</p>
<p>Bloomberg industry research analyst Herman Chan pointed out that considering the interconnections between banks and private credit companies, the negative &#34;gate&#34; news continues to weaken market sentiment towards the banking sector. Although banks have relatively limited direct lending risks to private credit, the current market attitude is to sell first and ask questions later.</p>
<h2>Surge in Redemption Requests, Morgan Stanley Approves Less Than Half</h2>
<p>Reports indicate that this capital outflow highlights the risks hidden in such semi-liquid funds. These funds are marketed to investors as a channel for participating in private credit investments, but due to the underlying assets being traded very infrequently, they only provide occasional exit opportunities.</p>
<p>Among them, the industry newcomer Cliffwater's flagship fund (CCLFX), which has a scale of $33 billion, received redemption requests amounting to as much as 14% of its shares in the first quarter. Ultimately, the fund only approved redemptions of 7% of its shares.</p>
<p>At the same time, Morgan Stanley's North Haven Private Income Fund, with nearly $8 billion in assets, also received redemption requests amounting to 10.9% of its net assets in the first quarter. The bank ultimately decided to set the redemption limit at 5%, meaning it would only return about $169 million, less than half of the investors' redemption requests.</p>
<h2>Morgan Stanley: Pressure May Ease Soon</h2>
<p>Morgan Stanley noted in a letter to clients that the private credit industry as a whole is facing challenges, including shrinking asset yields and uncertainty in the merger and acquisition environment. However, the bank expects that &#34;some pressure may ease soon.&#34;</p>
<p>Morgan Stanley also explained that setting a redemption limit is to balance providing periodic liquidity with the illiquid characteristics of investing in private assets, emphasizing that as of January 31, North Haven had available liquidity exceeding $2.2 billion, and its annualized net return over the past three years reached 8.9%.</p>
<p>Cliffwater founder Stephen Nesbitt also emphasized that the fund has achieved an annualized return of about 9.4% since June 2019, and &#34;the historical realized loss rate is close to zero.&#34;</p>
<h2>The Market is Experiencing a &#34;Clearing&#34;</h2>
<p>PIMCO President Christian Stracke candidly stated in a recent podcast that the market is undergoing a &#34;clearing.&#34; He indicated that this is not just a crisis of confidence, but a crisis brought about by terrible underwriting standards. He further pointed out that years of lax credit standards are leading to pressure, especially after issues arose with some well-known companies, increasing investors' concerns about loan quality and risk exposure to software companies
Christian Stracke predicts that the default rate will rise to the mid-single digits in the coming years, and investor returns may decrease from around 10% to 6%. However, he emphasizes that he does not believe this will trigger a broader credit crisis, as long as the U.S. economy performs reasonably well and the Federal Reserve tends to lower interest rates or maintain them at current levels, a spiral of credit tightening is unlikely to occur</p>

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<p>As concerns grow among investors about the impact of AI on loan quality, private credit funds are facing a wave of redemptions. Morgan Stanley and Cliffwater have restricted fund redemptions due to redemption requests exceeding limits. Morgan Stanley's stock fell by 4%, and other asset management companies also faced sell-offs. The redemption requests highlight the risks of semi-liquid funds, with Cliffwater's flagship fund approving only 7% of redemption requests. Morgan Stanley expects some pressure to ease soon and emphasizes that setting redemption limits is intended to balance the characteristics of liquid and illiquid assets</p>

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AI concerns trigger a wave of redemptions in private credit, Morgan Stanley approves less than half of the applications, financial stocks face collective sell-off