Signage outside Blackstone Group headquarters in New York.JEENAH MOON/Reuters
Blackstone’s BX-N flagship private credit fund faced a surge in client withdrawals in the first quarter, amid wider investor jitters about the private credit sector and troubles at smaller rival Blue Owl Capital OWL-N.
The New York-based investment giant let clients pull a bigger than usual US$3.7-billion from its US$82-billion credit fund, known as BCRED, a filing showed on Monday. Adding US$2-billion of new commitments left net withdrawals at US$1.7-billion.
Blackstone’s shares fell around 8 per cent on Tuesday to a two-year low after it said redemption requests totalled 7.9 per cent of the fund in the quarter, prompting it to lift its usual 5-per-cent limit to 7 per cent.
Blackstone and its employees invested US$400-million into the fund to allow all requests to be met, it said.
Shares in alternative asset managers Apollo APO-N, KKR KKR-N and Ares ARES-N also fell, on indexes that were broadly lower due to conflict in the Middle East.
The US$2-trillion private credit industry, which has grown rapidly over the past decade, has been hit in recent months by questions over valuation and transparency, concerns about Blue Owl replacing client redemptions with promised payouts, and the exposures of some players last year to the bankruptcies of a U.S. auto parts supplier and a subprime auto lender.
Wall Street lenders were also shaken on Friday by the collapse of UK mortgage lender Market Financial Solutions Ltd, fuelling concerns about losses among banks and reviving warnings of “cockroaches” in the booming industry.
Pressure builds on retail-facing credit funds
Funds such as BCRED, which are open to wealthy individuals, have come under particular strain. BCRED, and the fund Blue Owl is struggling to manage, are business development companies (BDCs) that raise money, often from retail investors, and lend to mid-sized companies.
Investment bank RA Stanger, which closely tracks so-called alternative assets, including private equity and private credit, said it “believes alternatives are beginning to enter a hairpin turn, with capital shifting away from private credit. We are now forecasting an approximately 40% year-over-year decline in BDC capital formation for 2026.”
Stanger compared the shift to the drop-off in real estate funds for wealthy investors in 2023, when Blackstone blocked withdrawals from a fund in that sector.
Around 24 per cent of Blackstone’s US$1.27-trillion assets under management come from wealthy individuals, a group investment firms have courted as lagging returns deter institutions such as pension funds.
Blackstone said its approach was driven by the fund structure, “not by any constraints on BCRED’s liquidity.”