Shares of prominent alternative asset managers declined sharply on Wednesday following an update from Cliffwater that its flagship non-traded business development company received elevated redemption requests in its most recent tender window.
Cliffwater reported that 17% of its $31 billion non-traded BDC sought redemptions during the May 2-29 window, an increase from the 14% requested during the February window. The fund opted to maintain a 5% redemption threshold.
Market reaction to the disclosure was pronounced. Blackstone (NYSE:BX) fell 5%, KKR (NYSE:KKR) dropped 5%, Blue Owl (NYSE:OWL) lost 5%, and Ares (NYSE:ARES) slid 5%. Carlyle Group (NASDAQ:CG) and Apollo (NYSE:APO) each declined about 3%.
Cliffwater said it has sufficient liquidity to satisfy 5% redemption thresholds for another 12 months. The firm was among the earlier managers to report in the current redemption cycle.
TD Cowen analyst Bill Katz commented that while the Cliffwater update was not wholly unexpected, it could push the alternative-assets sector's recovery timeline beyond Labor Day. Katz emphasized that market stabilization will hinge on whether redemption requests from peers peak or begin to decelerate, and he flagged upcoming updates covering the March and April tender windows as important to monitor.
Katz also noted several mitigating factors contained in the Cliffwater disclosure. First, the fund retained its 5% tender request threshold, a level Katz expects the industry to increasingly adopt to reduce "run on the bank" risk. Second, Cliffwater's liquidity position appears adequate to meet the 5% threshold for roughly a year, suggesting the fund is not being forced into asset sales. Third, Katz said the underlying return profile remains solid and that the rates and spread environment is improving, though he framed this as an observation rather than a guaranteed outcome.
The analyst warned that if forthcoming updates for the March and April windows do not show improvement, the alternative-asset manager group could struggle through year-end. He suggested the sector may only begin to recover if redemption flows moderate in subsequent reporting periods.
Sectors and markets affected: The immediate impact was concentrated in publicly traded alternative asset managers and related financials, with potential knock-on effects for credit-focused investment strategies and the broader private credit market if elevated redemptions persist.