Morgan Stanley (MS  ) continued to face elevated redemption demand at its North Haven Private Income Fund, with investors seeking to withdraw 11.4% of shares in the latest quarterly repurchase window - more than double the 5% the fund plans to buy back. The 11.4% redemption request level was only slightly lower than the 11.6% recorded in the previous quarter, according to a regulatory filing reported by Reuters. The fund's repurchase cap remained at 5%, a limit commonly used by non-traded private credit vehicles.

Morgan Stanley said a significant portion of the latest redemption demand came from investors who were unable to fully exit in earlier repurchase offers. Nearly two-thirds of the requests were from investors who did not receive their full requested amount in the previous two offers.

The fund said the composition and stabilization of redemption requests "may indicate the durability of the company's investor base," according to Reuters.

Morgan Stanley also said that once the latest repurchase is completed, investors who requested full redemptions in the previous two offers will have received more than 80% of the amount they sought to withdraw.

The filing says the latest repurchase is expected to reduce the fund's net asset value by about $101 million, after accounting for new inflows and dividend reinvestments.

Redemption pressure has emerged as a key issue for private credit funds that offer investors periodic liquidity despite holding largely illiquid loans. Investors can submit withdrawal requests above the amount a fund is permitted to repurchase, leaving some requests to be carried into subsequent tender offers.

A separate vehicle, North Haven Private Income Fund A, also saw elevated redemption demand, though requests declined to about 6.8% from 7.2% in the prior quarter. The fund likewise plans to repurchase 5% of its shares.

Redemption Requests Continue in Q3

Private credit funds have been capping redemptions at 5% in recent months amid rising concerns about asset quality and valuations, particularly in software lending.

The flagship private credit fund of Cliffwater LLC capped redemptions at 5% in Q3 after investors asked to redeem about 16% of shares.

Blackstone's private credit vehicle also saw elevated redemption requests this month, capping the withdrawal limit at 5% after investors sought to tender roughly 10% of shares during the third quarter for the $77.2 billion Blackstone Private Credit Fund (BCRED).

BCRED received $4.3 billion of repurchase requests in the third quarter, and some of that demand reflected investors who had already tried to redeem in the second quarter. In the prior quarter, the fund satisfied about half of the $4.5 billion in requests, leaving $2.3 billion outstanding, of which some was resubmitted in the latest tender.

Loan Performance Could Rekindle Redemption Pressure

Investor redemptions have eased after a period of heightened concern, but Oxane Partners Managing Director Kanav Kalia told Benzinga that another deterioration in loan performance could trigger renewed withdrawals.

"If suddenly there's a large chunk of loans here that start to underperform, you might see a few more of those high redemptions come back in," he said.