Blackstone Private Credit Fund Caps Withdrawals in Fresh Test for Strained Market

Investors are once again learning the hard way that when a fund is semi-liquid, the operative part of the term is semi. 

On Thursday, Blackstone continued to cap withdrawals from its $77.2 billion Blackstone Private Credit Fund (BCRED) as requests to pull money just keep rolling in. In the third quarter, investors requested withdrawals of 10% of the fund’s shares, according to a regulatory filing. That marks the second quarter in a row requests have hit that level. But investors won’t be getting their hands on as much as they’re asking for, which would amount to $4.3 billion in equity. Blackstone said it would limit withdrawals to 5% of the fund’s shares, which is typical for these types of semi-liquid funds. 

Cash Crunch

For years, private credit was primarily available only to institutional investors. But as retail investors grew hungry for investments outside of traditional stocks and bonds, alternative asset managers, seeing a massive new pool of potential investors, were eager to oblige. Wealthy individuals could get exposure to private credit without completely locking up their money via semi-liquid funds. 

Now, we may be seeing the end of the retail liquidity illusion, in part because of concern that AI disruption could hurt many of the software companies that private credit funds lend to. Tack on the fact that private credit valuations are often opaque and you can see why investors are nervous and eager to get their money back. In the second quarter, BCRED fulfilled roughly half of its redemption requests, leaving a backlog of $2.3 billion in unfulfilled requests, many of which were resubmitted in the third quarter, per the filing. 

Blackstone isn’t alone: 

• Bloomberg reported that Cliffwater told shareholders Thursday that it’s limiting withdrawals from its Cliffwater Corporate Lending Fund to 5% after investors asked to withdraw 16% of the fund’s shares. 
• Other firms like Apollo and Ares have also had to cap redemptions amid the private credit reckoning. 

Worth It? There’s more bad news for mom-and-pop investors: The underlying assets in some private credit funds may be worth even less than they initially thought. A new analysis from Reuters of 44 business development companies found that portfolio values moved further below cost in the first six months of the year. Their combined investments had a $92.88 billion fair value at the end of June compared with a $95.19 billion reported cost. (That’s a wider spread than the $95.82 billion fair value and $96.54 billion cost at the end of last year.)