Corrects BXPE size to $22 billion from $15 billion in paragraph three, to account for Blackstone's parallel European vehicle. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Liam Proud

LONDON, June 3 (Reuters Breakingviews) - One unnerving question has hung over the recent market panic about private-credit software defaults. If investors are fleeing debt vehicles in fear of AI-driven loan losses, why are they so calm about products that package up the equity in such buyouts? Shares in Partners Group PGHN.S, a Swiss asset manager fell as much as 18% on Wednesday after Bloomberg reported that redemption requests had surged in one of its so-called evergreen buyout vehicles. It may be a sign that the rout is now spreading.

Private-capital managers, most notably U.S. titan Blackstone BX.N, have in recent years sucked up tens of billions of new money through vehicles aimed at individual investors, as distinct from the industry's traditional institutional clients like pension funds. Partners Group was an early pioneer in these evergreen structures, which tend to offer juicy private-market style returns alongside limited liquidity, typically letting backers withdraw 5% of the fund's net asset value per quarter. This unique selling point has turned into a flaw: the investors in credit vehicles have been yanking money this year, fearing rising defaults particularly on software loans, forcing managers to limit redemptions.

Yet equity-focused evergreens, which are generally smaller, have so far been the dog that didn't bark. Examples include the $22 billion Blackstone Private Equity Strategies Fund (BXPE), KKR's KKR.N $8 billion K-PRIME, and $2 billion EQT EQTAB.ST Nexus. In one sense, the lack of a run on these vehicles looks odd. If credit funds are exposed to defaults on leveraged-buyout debt, then by definition the equity backers of those and similar deals are at even greater risk of being wiped out, given their lower ranking in the capital structure. Investors may be waking up to this. Partners Group's equity-focused $9 billion Global Value SICAV fund has enforced its 5% redemption gate after investors with about 10% of net asset value attempted to withdraw in the second quarter, according to the Bloomberg report.

Blackstone, KKR, EQT and others have reasons to hope they won't suffer the same fate. First, the Partners Group equity fund has performed poorly, trailing its public benchmark in recent years. Second, the Swiss firm was hit with a late-April short-seller report questioning its private-valuation marks, which the company dismissed as "frivolous, defamatory, and highly misleading". Both factors seem idiosyncratic. A person familiar with the matter told Breakingviews that EQT's Nexus redemption volumes have been flat in the most recent quarter.

Still, there are other causes for concern. There is arguably a more severe liquidity mismatch in the private-equity evergreens than in credit: buyout deals can tie up a fund's capital for five or more years and can't always be sold, whereas private loans usually mature in three. That may give the equity-fund investors more reason to flee first and ask questions later, especially if they think others will do the same. This scenario would remove a key source of growth for the industry. Partners Group's stock slide dragged EQT down 7% on Wednesday morning, suggesting that investors think the panic will spread.

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CONTEXT NEWS

Bloomberg reported on June 3 that Swiss private-capital manager Partners Group had capped withdrawals from a so-called evergreen private equity fund following a surge in redemption requests. Evergreen funds invest primarily in unlisted assets and allow limited liquidity, usually 5% of net asset value per quarter.

The report said, citing an unpublished investor letter, that the company ​is limiting redemptions ​in its $8.6 billion Global Value ‌SICAV ⁠fund to 5% of net asset value per quarter after requests ​climbed to ​about ⁠9.8% in the second quarter.

Shares in Partners Group were down 18% as of 0945 GMT on June 3, while Swedish peer EQT's stock was down 7%.