Morgan Stanley caps private credit withdrawals again as investors ask for the exit

Morgan Stanley is curbing redemptions at its nearly US$7 billion private credit fund again in the third quarter⁷. Investors requested to take out about 11%^6,7, against a fund that is sticking to its standard 5% quarterly repurchase limit⁹. The vehicle has been identified as the North Haven fund⁴.

The cap is the second round rather than the first: the bank is again limiting redemptions at its flagship private credit fund⁶, and the fund keeps facing redemptions⁹. Withdrawal requests remained elevated in the third-quarter repurchase offer, according to a regulatory filing³, and a recent regulatory filing is the source for the current terms⁹. A change in withdrawal terms at one of its private funds is being treated as a key current development for Morgan Stanley¹, whose shares steadied through the news¹.

Where the accounts diverge

The sources do not agree on the direction of travel. One account describes a record rush for the exits⁶. Another, looking across major private credit funds rather than this one, reports that redemption requests have eased lately, while remaining elevated⁴. Both can hold at once, but they point to different conclusions about whether this is a single fund’s problem or a sector’s.

The backdrop is harder to read either way. Bloomberg reported that the US private credit default rate has hit a record of 6.3%, according to Fitch⁵. Withdrawal requests have also reached non-traded private credit business development companies⁸.

Why it matters to investors

The structural point is liquidity, not credit quality. Private credit looks calm and high-yield, but the extra return often reflects real credit risk and limited liquidity¹⁰. A quarterly repurchase limit⁹ is what converts that illiquidity into a queue when enough holders want out at once, which is precisely what an 11% request against a 5% cap produces^7,9.

The asset class is also growing into territory that will test it. The buildout of AI infrastructure is becoming a credit market in its own right, extending from investment-grade bonds and leveraged loans into private credit and infrastructure finance². Investors watching for the next signal have two: the size of the next quarterly repurchase request at this fund^3,7, and whether the record default rate reported by Fitch keeps climbing⁵.