Key Points:
Redemption Bottleneck: Requests running at 11.5% of NAV per quarter -> 5% quarterly cap honored -> $8.2 billion unmet queue compounding into Q4 2026.
40 Cents on the Dollar: Across 19 non-traded private credit funds in Q3 2026, funds fulfilled roughly 40% of $13.8 billion in redemption requests, leaving $8.2 billion trapped behind gates.
Inflow Collapse: If non-traded fund fundraising stays at the current $2 billion quarterly pace, annual inflows will finish 2026 at roughly $9 billion, down from $63 billion in full-year 2025.
Parent Company Fallout: Blue Owl Capital (OWL) has declined 45.1% over the past 12 months to approximately $9.15, reflecting investor concern over fee sustainability as redemption queues persist.
On September 25, a private fund in Philadelphia called Cox Capital mailed cash offers to retirees who own Apollo Debt Solutions shares. The price: $20.35 a share. Apollo's own site says those shares are worth $23.84. Cox is betting those retirees will take 85 cents on the dollar because the funds cannot pay everyone who wants out.
If you own SPY, VOO, or VTI, you own the parent companies running these funds. Blackstone and Ares both sit in the S&P 500. I don't think most people realize this. The industry collects fees on $205 billion in trapped private credit. They are already inside your 401(k).
Brokers sold these funds to conservative investors over the past few years. Retirees, mostly. The pitch was simple. Private credit. Yields of 9% to 11%. Steady income. The catch was in the fine print. You can only ask to leave once a quarter. The fund caps total buybacks at 5% of its net asset value. When times are calm, the cap never matters. When everyone heads for the exit at once, only one in twenty gets through the door.
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Here's what worries me. For three straight quarters, requests have run at two to three times the cap. In Q3, across 19 reporting funds, investors asked for $13.8 billion back. That is 11.5% of net asset value. The funds paid out $5.6 billion. The other $8.2 billion rolled into the Q4 line. But Q4 will bring its own new requests. The line keeps getting longer. Only 5% of the people in it get served each quarter. Fitch analyst Chelsea Richardson said it simply. The backlog feeds itself. Funds will face high demand for exits for quarters to come.
I can't stop thinking about Cox Capital. They call themselves a firm "focused on secondary-liquidity solutions for holders of illiquid alternative investments." Strip the jargon. They are a pawn shop that opened next to a locked bank. They put up $25 million in combined offers for shares in Apollo and Ares funds. Apollo holders: 85 cents on the dollar. Ares holders: 86.5 cents. The fund boards told shareholders to reject the Cox bids. The price is too low, they said. But those same boards cannot give shareholders all their money back. Cox CEO John Cox said it himself: "Roughly one in three shares requested this quarter expected to be repurchased."
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Three economists from Drexel and Wharton studied 59 of these funds. They published in June. The finding is simple. When a fund sells loans to pay people leaving, someone takes a loss. The people who stayed eat it. So staying only makes sense if you think nobody else will leave. But everyone sees the numbers. Everyone has a reason to run first. The gates built to stop a panic are causing one.
New money has dried up. Non-traded private credit funds raised just $2 billion in Q2. That is down 82% from the same quarter last year. The weakest total since late 2020. For the second straight quarter, more money left these funds than came in. Stanger CEO Kevin Gannon confirmed net outflows. Public versions of these funds now trade at 78 cents on the dollar of reported net asset value. The market thinks the loans are worth less than the funds claim. I've watched Blue Owl's stock drop 45% in the past year. Nobody knows how long the queue takes to clear.
I get it. A lot of these were bought on a broker's word. Securities lawyers are already filing. On December 20, 2021, FINRA logged a complaint against advisor Rey Descalso at J.W. Cole for selling funds that did not fit his client. The legal question is simple. Did the seller explain the gate? When you need your cash, you might get back 40% of what you asked for. The rest stands in line. These funds were sold to people who need income. People who need access to their money. People who cannot wait eight quarters for a line to clear. That is two full years.
Forty cents. For every dollar investors asked to take back in Q3, they got 40 cents. The other 60 cents is still in line. That is across 19 funds covering 98% of the market. In Q2 it was worse: 37 cents. Goldman's non-traded fund was the only one that stayed below the cap. It came in at 4.999% of shares. A hair under the line. Even the good outcome was a razor-thin escape.
Somewhere today, a retiree is holding two pieces of paper. He was told this fund would pay him 10% a year. One letter from the fund says he can have 40% of what he asked for. One from a firm he has never heard of offers 85 cents to walk away now. The bank is locked. The pawn shop is open.
More on this tomorrow.
— American Ledger
