By Arasu Kannagi Basil and Isla Binnie
NEW YORK, June 4 (Reuters) – Blackstone has capped withdrawals at its flagship private credit fund as redemption requests jumped in the second quarter, the world’s largest alternative asset manager said on Thursday, following its peers.
After investors sought to pull out 10% of shares in the second-quarter tender offer, compared to 7.9% in the previous quarter, the $79 billion Blackstone Private Credit Fund limited withdrawals to 5%, the customary limit for these vehicles.
Investors pulled more money out of private credit funds at the beginning of this year than they put in, a first for the asset class that had been popular for offering wealthy individuals exposure to assets that rarely trade publicly.
While most asset managers had already capped redemptions at the usual 5% limit during the first-quarter tender offers, Blackstone had refrained from doing so, fulfilling 100% of the repurchase requests. The company and some employees pooled money to help meet all the redemption requests.
Blackstone said in a statement on Thursday that the limits were deliberate and designed to replace immediate access to capital with the prospect of better long-term returns.
“BCRED’s structure is a fundamental feature, with investors exchanging some liquidity at times for long-term outperformance,” it said in a statement.
Non-traded business development companies (BDCs), like BCRED, generally offer to buy back some shares every quarter.
Analysts have backed private credit funds’ move to limit withdrawals at 5% of shares, saying it cuts the risk of forced asset sales.
Blackstone backed its decision to limit redemptions, saying that the repayment calendar was “aligned with the expected repayment cycle of investments, while preserving capital to deploy in attractive market environments.”
REPAYMENTS AND INFLOWS OUTPACE SHARES REPURCHASED
BCRED remains well capitalized, with loan repayments and inflows outpacing share repurchases, the fund said.
The fund’s Class I shares have delivered a 9.3% annualized total return since inception, which the firm said represents a 50% premium to leveraged loans.
Repurchase requests slowed down in the latter half of the period investors were given to file them, BCRED said in a filing. Its tender offer ran from May 1 to May 29.
Blackstone also said, “we have seen an acceleration in gross fundraising across Blackstone’s other private wealth products.”
Other private asset firms, including Blue Owl, have reported resilient appetite for asset classes including real estate from wealthy investors, as private credit stayed out of favor.
Capital inflows were roughly 2% of net asset value at BCRED in the second quarter, resulting in a net outflow of roughly 3% of NAV.
The fund said the investment environment for corporate direct lending was compelling, as markets stabilized after volatility earlier in the year.
“Deal activity is increasing at wider spreads compared to the prior quarter,” the fund said.
Q2 REDEMPTION CYCLE IN FOCUS
Redemption windows at key U.S. non-traded private credit funds for the second quarter began closing last Friday, and now market participants are keeping a close eye on the rate of withdrawal requests.
Top asset management executives who gathered at the Bernstein Strategic Decisions Conference in New York last week said redemption requests in private credit vehicles were expected to remain high throughout the year.
Cliffwater was the first to report second-quarter redemptions on Tuesday. The withdrawal requests at its flagship $31.3 billion private credit fund worsened to 17% from 14% in the first quarter.
Swiss asset manager Partners Group also flagged more withdrawal requests on Thursday, a day after its shares plunged on news that it had capped a key fund.
Tender offer windows across major U.S. private credit funds are poised to expire throughout June.
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Sriraj Kalluvila and Shinjini Ganguli)
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