Blackstone has become the latest firm to restrict redemptions amid ongoing investor withdrawals, after investors attempted to redeem 10% of their shares in its flagship private credit fund.
According to documents filed on Thursday, the $79 billion Blackstone Private Credit Fund (BCRED) informed shareholders that only 5% of shares would be allowed for redemption—marking a sharp contrast to the previous quarter, when BCRED, the largest fund of its kind, took an unusual step by permitting investors to redeem all 7.9% of their shares. At that time, the company even used executives’ personal funds to finance these redemptions.
This time, however, investors requested larger redemption amounts, and Blackstone’s move to restrict redemptions aligned it with the decisions of most peers who had limited redemptions in the previous quarter.
A spokesperson for the asset management firm said Thursday that restricting redemption capability is “a fundamental feature, where investors sometimes sacrifice some liquidity in exchange for long-term outperformance.”
In the $1.8 trillion private credit market, redemption requests are expected to rise this quarter as investors intensify efforts to withdraw funds following restrictions. Meanwhile, concerns about a reversal in the credit cycle persist, with market leaders warning that default rates could increase as artificial intelligence continues to disrupt industries and debt issued during the era of ultra-low interest rates matures.
Cliffwater LLC also informed investors this week that it has set a 5% redemption cap on its flagship private credit fund, following investor requests to return 17% of their shares. In the previous quarter, the Cliffwater Corporate Loan Fund had returned approximately half of the 14% share requested by investors.
On Thursday, BCRED said in a letter to shareholders that stock buybacks began to slow toward the end of its tender offer period.
“But the rising demand indicates that confidence in private credit remains weak,” Bloomberg Intelligence analyst Michael Kay wrote in a report on Thursday.
Since its inception, the BCRED fund has delivered an annualized total return of 9.3%, outperforming leveraged loans, the fund told investors. As of April 30, its portfolio was valued at 96.1 cents per dollar overall, with the bottom 5% of the portfolio valued at 68.3 cents per dollar.
Private credit has never before faced a severe default cycle. Many restructurings and defaults have yet to be reflected in public reporting, leading some major investors to believe that returns are overestimated and losses are underestimated.
“Under the surface, there are turbulent currents,” said Daniel Ivascyn, chief investment officer at Pacific Investment Management Company, in an email statement. Ivascyn noted that the first sustained credit default cycle in years has begun.
His warning echoed those of numerous market leaders, who believe a long-overdue reckoning may finally be arriving. According to data from Fitch Ratings, the officially reported private credit default rate reached 6% by the end of April—the highest level since Fitch began tracking this metric.
