Activist Hedge Funds and Gadflies Target Private Credit with Deep-Discount Tender Offers

Activist Hedge Funds and Gadflies Target Private Credit with Deep-Discount Tender Offers

The liquidity freeze across retail-facing, non-traded Business Development Companies (BDCs) and interval funds has attracted specialized asset managers seeking to exploit the massive backlog of gated redemption requests.¹ However, early results from these secondary market "market tests" reveal a surprising psychological dynamic: retail investors would rather remain trapped in illiquid funds than accept deep discounts to secure immediate cash.

In mid-to-late July 2026, Cox Capital Partners launched a systematic secondary tender offer to purchase up to $90 million of shares across five gated non-traded BDCs managed by HPS Investment Partners, Apollo Global Management, Ares Management, and Blue Owl Capital. Recognizing the nearly $15 billion redemption backlog across the industry, Cox offered to buy the shares at an average 26% discount to their stated Net Asset Value (NAV).

By the late August 2026 deadline, the response from retail investors was a resounding rejection. Cox Capital ended up drawing less than $5 million in total orders—representing less than 1% of the targeted holdings. Some of the bids drew no offers at all.

Michael Covello, an executive managing director at Robert A. Stanger & Co., commented on the outcome:

"For me, it comes down to the size of the discount and investors weighing that to redeeming at NAV and the risk of waiting there... I think the investors were more savvy and thought the discount was too great for the price of liquidity."

John Cox, CEO of Cox Capital, acknowledged the slow start but indicated that the firm will persist and is now expanding the strategy to interval funds:

“We obviously hoped the offers would have been more successful, but we’ll keep coming back... I think adoption will just increase as people get more comfortable with the idea.”

Cox Capital is currently extending its deep-discount tender strategy to private credit interval funds, targeting vehicles managed by Cliffwater LLC and Variant Investments (the latter of which received redemption requests equal to 50% of its shares in the prior quarter).

This outcome suggests that while retail investors are highly anxious about their inability to withdraw capital, they are unwilling to realize immediate, double-digit losses. They prefer to wait in multi-quarter redemption queues in the hope of eventually exiting at full NAV, effectively prioritizing paper valuations over immediate liquidity.