Blackstone’s flagship private credit vehicle, BCRED, recorded a total loss of 0.4% in February, marking its first monthly decline since a 1.3% drop in September 2022. The fund’s performance update, posted on its website, arrived as investor focus on private credit liquidity and asset quality intensified.
The Morningstar LSTA index of publicly traded leveraged loans has also shown softness, down 0.37% over the past three months, underscoring stress in the broader leveraged loan market that sits alongside private credit.
Private credit strategies have drawn scrutiny in recent months because of weakening credit quality tied to concentrated exposures in vulnerable sectors - software was specifically highlighted - along with concerns about transparency into underlying holdings and valuations.
BCRED, an $82 billion vehicle, offers investors quarterly redemption rights for a portion of their holdings. This year the fund experienced an unusually large wave of withdrawals in the first quarter, with investors redeeming $3.7 billion, a pull that coincided with the February loss.
Market reaction to developments at the fund has been significant for Blackstone itself. Shares of the company have fallen by more than 28% so far this year, reflecting investor unease with private credit exposure and broader alternative asset-management dynamics.
During February, BCRED recorded markdowns to the values of a "select" number of loans, according to a report earlier in the day that cited a letter to financial advisers. That report identified customer service software company Medallia among the borrowers affected by writedowns.
Blackstone defended the vehicle’s longer-term returns, saying: "BCRED continues to deliver strong performance for its investors, with a 9.5% annualized total return since inception for Class I shares, a 360 bps premium to leveraged loans." The firm added that the fund has outperformed the leveraged loan market by 100 basis points so far this year.
Concerns around private credit have begun to ripple through banking corridors. Some major U.S. banks have tightened lending to private credit funds while funds themselves have moved to limit redemptions. JPMorgan Chase marked down the value of certain loans to private credit players earlier this month, a step that will reduce lending availability to these funds.
Large wealth and asset managers also reacted to redemption pressure; Morgan Stanley and BlackRock were cited as having limited withdrawals from some of their funds after a surge in redemption requests.
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