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BlackRock has limited withdrawals from one of its flagship private credit funds following a surge in redemption requests, as investors retreat from the asset class and questions about credit quality intensify.
The asset manager’s $26bn HPS Corporate Lending Fund, which it acquired as part of its $12bn takeover of private credit specialist HPS Investment Partners last year, approved 54 per cent of redemption requests in the first quarter, according to a letter sent to investors in the vehicle.
The fund received withdrawal requests worth $1.2bn in the quarter, or roughly 9.3 per cent of its net asset value. HPS told investors it would pay out $620mn as part of the quarterly redemption, hitting a 5 per cent threshold that allows the asset manager to restrict further outflows.
The decision to cap withdrawals at 5 per cent will be closely scrutinised by the industry as outflows climb across semi-liquid private credit funds. The vehicles have drawn in hundreds of billions of dollars from retail investors and wealthy individuals who were enticed by the high returns on offer but have started to bolt at the first signs of stress.
Alternative asset managers were among the worst performing stocks in the US on Friday. BlackRock slid 5.1 per cent, while the shares of KKR, Blue Owl and Ares Management all declined more than 5 per cent.
The exodus from private credit funds was in part sparked by the failures of two auto parts suppliers last year, which raised questions about due diligence in corporate lending markets.
It has since been stoked by a smattering of writedowns at funds managed by KKR, Apollo Global Management and Blackstone as well as a separate BlackRock vehicle. The Federal Reserve’s decision to cut interest rates last year has added to pressure on the space, leading some funds to cut their dividends.
Many funds have agreed to honour redemption requests in excess of 5 per cent, with executives hoping their decisions not to gate would quell investor anxieties. Blackstone earlier this week agreed to fulfil all of the redemption requests it received for its $82bn private credit fund, the industry’s largest, as withdrawals jumped to 7.9 per cent of the vehicle’s assets.
But analysts have questioned how long the industry could weather elevated withdrawals, given that the semi-liquid funds mostly hold loans that rarely or never change hands. Blue Owl last month permanently halted redemptions at one of its funds, spurring further market turmoil at a time when investors were already souring on the asset class.
HPS told investors on Friday that the limit on redemptions was “foundational” to the fund’s past performance, with the vehicle reporting a 9.1 per cent total return after fees last year.
“Without it, there would be a structural mismatch between investor capital and the expected duration of the private credit loans in which HLEND invests,” the firm wrote.
It added that it had previously limited inflows when it did not foresee attractive investment opportunities “rather than dilute returns to existing shareholders or compromise our underwriting standards”.
HPS said the fund drew in $840mn in new commitments from investors in the first quarter and noted that it had $4.4bn of liquidity.