Fourth quarter commentaries are now live!
This quarter, Claire Thornhill talks about the importance of investing with a margin of safety while Frank Mullen discusses some of the lessons we've learned from our long history of investing in Calfrac.
A few charts worth discussing
“Consolidation continues in the Canadian oil patch. Midcaps are getting most of the attention from investors.”
“January inflows into equity ETFs are running at 5x the average for the month, with the funds attracting a record US$400B over the past three months. It’s a sign of just how aggressive risk appetite has become.”
“Japanese bond yields are impersonating momentum stocks.”
Other charts worth pointing out
Fund Manager Survey – Liquidity conditions
Fund Manager Survey – Investor sentiment
Mutual fund and ETF flows
Value stocks have been outperforming in recent months
Global view of Value vs. Growth
Global view of Cyclicals vs. Defensives
Emerging Market vs. Developed Market valuation comparison
Investment grade index – Financials vs. Technology
Investment grade credit spread comparison
Private-Credit Investors Are Cashing Out in Droves
For the first time since the start of the private-credit boom, large numbers of individual investors are trying to get their money out.
Several of the biggest funds eligible to wealthy individuals received requests from about 5% of shareholders to cash out at the end of last year, well above the normal volume, according to Securities and Exchange Commission filings. One, managed by Blue Owl, got redemptions for about 15% of its shares, primarily from Asian clients, a person familiar with the matter said.
The rising redemptions come at an awkward time for private-credit fund managers—and for the Trump administration—as they push for new rules that would “democratize” private markets by encouraging their inclusion in 401(k) retirement plans for all Americans.
Private-fund managers, including Apollo Global Management, Blackstone and Blue Owl, blame fearmongering about a recent spate of corporate bankruptcies, like automotive supplier First Brands, for the surge of withdrawals. Analysts say there could be a simpler explanation: Individual investors are falling into a familiar pattern of selling out when an asset class underperforms expectations.
A handful of these funds have cut dividends because the yields on their loans are falling in lockstep with benchmark interest rates. More dividend reductions will follow, Dodd said, likely prompting more redemptions.
Total returns from five of the largest private-credit funds aimed at individual investors declined to an average of about 6.22% in the first nine months of 2025, compared with 8.76% in the same period of 2024 and 11.39% in 2023, according to an analysis by The Wall Street Journal.
Money managed by BDCs has tripled since 2020 to about $450 billion. And the funds still took in more money from new investors than they paid out in their most-recent quarter, a sign they are still popular among investors and advisers. Nevertheless, the recent withdrawals are drawing comparisons to a Blackstone private real-estate fund that faced an exodus of client cash three years ago.
Managers of private funds say all investors should own some because they can deliver higher returns than stocks and bonds, and diversify their portfolios. Some experts say the funds are inappropriate for individuals because they charge high fees and limit how quickly clients can get their money back.
Few U.S. companies have been willing to make such funds available in their employees’ 401(k) plans for fear of class-action lawsuits over the high fees they charge and their potential unsuitability for individual investors.
Unlike insurers and pensions, which match investments to long-term liabilities that won’t come due for years, individuals often sell holdings to pay for major life expenses. Investing in funds built for deep-pocketed institutions may complicate these short-term needs, like paying for a medical procedure or college tuition.
Investment firms have sought to address the mismatch by launching “semi-liquid” funds that limit quarterly redemptions to 5% of shares outstanding and are eligible for sale to wealthy individuals.
Blackstone pioneered the strategy with a real-estate fund called Breit. The fund was a big hit. But when the office market crashed during the pandemic, Breit became a black eye for Blackstone and a sore spot with its investors. Many complained of being trapped by the 5% limit on redemptions. While the firm eventually slowed the flow of money exiting from Breit, the fund hasn’t returned to its peak size.
As real estate’s star faded, fund managers pivoted to marketing semi-liquid BDCs. The credit funds were yielding more than 11% after the Federal Reserve raised interest rates to fight inflation, boosting the income from their loans. Large brokerages like UBS and Wells Fargo started offering the funds on their platforms used by thousands of financial advisers.
Blackstone’s head of private wealth Joan Solotar said the firm had changed its education practices to better inform clients about withdrawal limits, and its BDC, called BCRED, quickly grew to about $79 billion. Blue Owl, which was co-founded by a former Blackstone partner, launched the second-most-popular fund, which manages about $34 billion.
More recently, private-fund managers began partnering with mutual-fund managers like State Street and Vanguard to develop products for the mass audience. The Labor Department under President Trump is working on rules to reduce legal risks for 401(k)s that include private funds.
The first signs of trouble came last summer when loans to companies such as First Brands and auto lender Tricolor defaulted amid allegations of fraud. Most of the loans weren’t owned by private-credit funds, but they still triggered a scare among individual investors and their advisers. Declining dividends didn’t help.
In the last quarter, investors pulled 4.5% out of BCRED, about 5% from Blue Owl’s largest fund and 5.6% from a big BDC managed by Ares Management.
Fund managers are trying different strategies to avoid a chain reaction.
Redemptions have been particularly heavy from a technology-focused BDC that Blue Owl has grown to about $6 billion by relying heavily on UBS’s wealth-management platform to sell it to individuals in Asia. By December, Blue Owl had received redemptions well in excess of 5% but rather than capping payouts there, the firm announced it would raise the threshold to 17%, borrowing money to retire the shares.
The idea was to flush all shareholders who wanted out in one fell swoop, avoiding the cycle of redemptions that weighed down Blackstone’s real-estate fund for years when it fell from favor. About 15% of the technology BDC’s investors took Blue Owl up on its offer and redeemed, the person familiar with the matter said.
The technique is feasible only as long as a fund has cash—or can borrow more—to fund payouts rather than liquidating its investment.
This week’s fun finds
Drone photo winners will amaze your eyeballs: From a high-up horseman to a holy river
A solitary horseman, illuminated by a beam of light, stands on the snow, surrounded by eerie and jagged mountain peaks. It's an otherworldly image and it raises the question: How did a photographer manage to make such a captivating picture?
The answer: Drones!
That's not to say drones work miracles. "The shooting angle must be carefully calibrated," says Susanna Scafuri, a journalist and photo editor based in Italy and a member of the jury.
But the result can be spectacular, she says.
