Private credit funds have become a trap for wealthy investors - Ken Griffin

Citadel hedge fund founder Ken Griffin has questioned whether wealthy private investors really understood the risks of putting money into private credit funds, the Financial Times reports. The billionaire also warned that such investors may now find it difficult to access their money. Citadel hedge fund, founded by Griffin, manages $67 billion in assets and investor opinion is important to the market, the publication explains.

Investors in private credit did not understand the instrument they were investing in, Citadel founder Ken Griffin told the Financial Times, reflecting on the prospects for funds such as Blue Owl Capital.

"The retail segment was seen as a phenomenal channel for raising assets [in private credit funds]," Griffin noted. - But did retail investors really understand the nature of the investments they were making?"

The private finance sector has evolved from the assets of investment funds, which invest in companies in private equity portfolios, the FT explains. The popularity of such funds has grown dramatically over the past decade as many banks have curtailed commercial lending due to tighter regulation. As a result, assets in the private lending industry have grown to more than $3.5 trillion, according to the Alternative Investment Management Association, and funds targeting wealthy investors have become one of the fastest-growing areas in the asset management sector, the FT writes.

"The real problem here is the mismatch between the liquidity available to the retail investor and the term of the investment," Griffin explained. - We live in a world where retail investors are used to being able to withdraw their investments quickly. Investing in private credit is a different story.

Some of the largest alternative investment firms - including Blackstone, Apollo Global Management, KKR and Ares Management - have gone beyond their traditional institutional client base in recent years by launching funds for wealthy investors, writes the FT. The prospect of higher returns in exchange for limited liquidity has attracted hundreds of billions of dollars from affluent private investors into "semi-liquid" private credit funds, which, unlike traditional mutual funds, allow them to periodically withdraw only a portion of their money, the publication explains.

The first cracks are starting to appear in the private credit industry, writes the FT. For example, private credit investment company Blue Owl Capital, which has been actively attracting retail investors, has restricted withdrawals from two of its flagship funds after requests for the return of billions of dollars. Investors were worried about Blue Owl's investments in software developers amid a "softwareapocalypse".

The Financial Times calculates that wealthy investors tried to withdraw more than $20 billion from private credit funds in the first quarter of 2025, of which they got back, under strict redemption rules, only just over half.

JPMorgan Chase CEO Jamie Dimon warned in his annual letter to shareholders this month that losses at lenders working with highly leveraged companies will be higher than many expect because of weakening lending standards. Speaking at the Norges Bank Investment Management conference in Oslo on April 28, Dimon pointed out that there are more than 1,000 companies in private lending and said that when the cycle turns, their results could vary widely.

While assessments of the prospects for defaults in the private credit sector vary, a number of financiers have suggested that some companies have come close to under-selling in pursuit of retail investors' money, the FT notes.

"Not everybody has promoted their product as clearly as we certainly would like to see - with the indication that it's not really a liquid product," Goldman Sachs President John Waldron said at the Semafor World Economy Summit in Washington on April 15. - These retail investors, I think, have a perception of more liquidity than exists in reality."

This article was AI-translated and verified by a human editor