Ares Management has once again limited withdrawals at its flagship Ares Strategic Income Fund (ASIF) after investors sought to pull out far more cash than the fund is willing to return in a single quarter. The move highlights a persistent tension in the fast-growing private credit market: these funds promise steady yields but can struggle when a wave of investors wants out at once.
Redemption requests for the second quarter reached 14.4% of the fund's net asset value, well above the 5% quarterly repurchase limit that ASIF typically honors. As a result, the fund capped actual payouts at that 5% threshold, meaning the vast majority of exit requests will roll forward into future repurchase windows. This is the latest instance of so-called gating in the private credit space, where fund managers slow the outflow of capital to protect remaining investors and avoid forced asset sales.
What is the Ares Strategic Income Fund?
ASIF is a non-traded private credit fund with roughly $23 billion in assets. Unlike a traditional mutual fund or ETF, it does not trade on an exchange. Instead, it offers scheduled repurchase periods—typically quarterly—during which investors can request to sell back their shares. The fund is designed to invest in private loans to companies, an asset class that can offer higher yields than public bonds but comes with limited liquidity.
That structure works well when most investors stay put. But when redemption requests spike, the fund faces a mismatch: its underlying loans are often illiquid and can't be sold quickly to raise cash. Capping withdrawals is a way to manage that mismatch, but it can also spook investors who worry about getting stuck.
Who is selling—and why does it matter?
According to Ares, the selling pressure was not a broad-based retail panic. The fund said most of the redemption requests came from a small group of non-US institutions and family offices that represent less than 1% of its more than 20,000 shareholders. Nearly two-thirds of the requests came from investors who had also tendered shares in the prior quarter, suggesting a concentrated group of holders trying to exit over time.
By contrast, US private wealth clients—the largest part of the shareholder base—tendered just 2.4% of their shares, and their redemption requests actually fell 35% from the first quarter. These same clients also accounted for nearly half of new inflows into the fund during the period. That mix suggests the broader retail investor base remains relatively calm, even as the headline redemption number looks alarming.
Industrywide, caution is rising. Research firm Robert A. Stanger reported that private credit funds sold to wealthy individuals saw $12.9 billion of net withdrawals in the first five months of this year. That trend has put pressure on fund managers to reassure investors that their money is safe and accessible.
What it means for investors
For everyday investors, the key takeaway is that a 14.4% redemption request rate does not mean 14.4% of the fund's assets are leaving. Because ASIF capped repurchases at 5%, the excess demand simply queues up for future quarters. That can soften the immediate hit to Ares' fee income, since assets under management decline more slowly than the headline number suggests.
But repeated gating can create a persistent overhang. Private wealth platforms and offshore allocators may slow new allocations to similar non-traded private credit funds until they see the queue clear and withdrawal demand stabilize. That could limit growth for the entire sector, which has boomed in recent years as investors chased higher yields in a low-rate environment.
The episode also underscores the importance of understanding liquidity terms before investing in private credit. Unlike a publicly traded bond fund, where you can sell shares any day the market is open, non-traded funds like ASIF require patience—and sometimes, a willingness to wait in line.
For context, the broader private credit market has drawn increased scrutiny from regulators and investors alike. The SEC's focus on how private equity firms value assets could eventually extend to private credit funds, particularly if gating becomes more common. Meanwhile, the risks in private lending have been highlighted by cases like Morgan Stanley's early loan to UK lender MFS, which raised questions about how these loans are structured.
For now, Ares has managed to contain the outflow without triggering a broader sell-off. But the repeated caps on withdrawals serve as a reminder that in private credit, liquidity is a privilege, not a right.
