Investors spurn a 26% discount for private credit exits

Cox Capital Partners offered to buy up to $90 million of shares in five non-traded business development companies managed by HPS Investment Partners, Apollo Global Management, Ares Management, and Blue Owl Capital, a bid conceived against a roughly $15 billion redemption backlog. Investors in private credit funds rejected the 26% discount to escape their positions; by the deadline, the offers drew less than $5 million in orders, a take-up below 6%, and some of the bids, which varied by fund, received no takers.

Cox made the initial offer in mid-July and expanded it at the end of the month, and John Cox, the firm's chief executive, said he will keep making the proposals as investors become more comfortable with the idea; representatives for the four managers declined to comment.

These funds gate redemptions at around 5% of NAV, and the demand to leave has been building since the US private credit default rate reached a record high in April, according to Fitch Ratings; the first quarter was the first time non-traded private credit vehicles handed more money back to investors than they raised, and some funds have devised novel ways to cover the requests as executives worked to calm the jitters. Against that backdrop, a handful of investors chose to stay, and the reason likely has less to do with conviction in asset quality than with the asymmetry of the choice: selling at 74 cents on the dollar converts an unrealized loss into a realized one, reportable in client accounts and LP statements, while staying in the queue preserves the paper at par even as the prospect of a lower eventual exit grows.

That asymmetry is the clearing-price mechanism in miniature, and it just revealed that 26% is not enough. This publication has argued that the first institutional redemption will set the clearing price for the private-markets gateway build-out; Cox's failed offer adds a data point from the high-net-worth side of the market, where the premium investors attach to avoiding a mark is higher than secondary buyers have priced. For family offices and endowments circling private credit for distressed bargains, price discovery runs through the redemption gate, not the auction block—and the gate is designed to keep prices high for a long time.