BlackRock private credit fund sees redemption pressure ease in third quarter

Redemption pressure in private credit may be starting to ease, with BlackRock's flagship fund receiving fewer withdrawal requests in the third quarter than in the previous three months. The development offers an early sign that investor concerns around the asset class could be moderating after a year of heavy withdrawal demand.

Investors in BlackRock's $23.1 billion HPS Corporate Lending Fund sought to withdraw about 11.5% of their shares in the third quarter, down from 13.3% in the previous quarter, according to a regulatory filing on Friday cited by Reuters.

The fund will repurchase 5% of shares, in line with the customary threshold for such vehicles.

Redemption pressure starts to ease

The decline comes after wealthy investors pulled back from non-traded private credit funds amid concerns over lending standards and the potential impact of artificial intelligence on software companies, which form an important part of the borrower base for direct lenders.

However, the latest figures suggest the redemption backlog may be beginning to clear as asset managers work through earlier withdrawal requests.

"The redemption backlog is now clearing. This is another encouraging data point on direct lending sentiment in the wealth channel, and we expect redemption trajectory for the BDC group (business development company) to decelerate," Evercore analyst Glenn Schorr said, according to Reuters.

"Overall, we expect BLK to trade positively today on the back of this release," Schorr said. BlackRock shares were up 2.4%.

The easing was not limited to BlackRock's flagship fund. Withdrawal requests at the BlackRock Private Credit Fund fell to 4.58% in the third quarter from about 5.3% in the previous quarter, while requests at the HPS Corporate Capital Solutions Fund declined to 1.9% from 4.7%, Reuters reported.

Private credit funds face investor scrutiny

The latest figures come as investors continue to assess the resilience of private credit portfolios and the ability of funds to meet redemption demands.

HLEND, one of the largest US non-traded private credit funds, has repurchased about $1.7 billion of shares across three repurchase periods that ended June 30. Its latest tender offer involved about $600 million.

The fund said the performance of its underlying portfolio companies remained strong and that its portfolio was highly diversified.

Since inception, its Class I shares have delivered a 9.9% annualised total net return through July 31, according to the information provided in the filing. That was a 3.5% premium to total returns from broadly syndicated loans.

The latest BlackRock data also come as the broader private credit industry enters another round of redemption disclosures. Blackstone began the third-quarter redemption season for major US non-traded private credit funds last week.

Late Thursday, TPG Twin Brook Capital Income Fund reported that repurchase requests had fallen to 1.2% from 2.1% in the previous quarter.

Other private credit vehicles are expected to disclose their third-quarter redemption figures throughout September, giving investors a broader picture of whether the pressure seen earlier this year is genuinely easing across the industry.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)