BlackRock has limited withdrawals from its $26 billion HPS Corporate Lending Fund after a surge in redemption requests, signaling growing investor concern over the private credit sector. The move comes as other firms similarly take steps to manage outflows from similar funds.
The world’s largest asset manager revealed it received $1.2 billion in withdrawal requests in the first quarter, representing roughly 9.3% of the fund’s net asset value. This exceeded the 5% threshold that allows BlackRock to restrict further withdrawals.
According to a statement, BlackRock will pay out $620 million as part of the quarterly redemption, triggering the limit on additional withdrawals. The decision highlights the liquidity challenges inherent in private credit, where assets aren’t easily sold to meet investor demands.
The restrictions follow similar actions by other major players in the private credit market. Blackstone recently increased its redemption limit from 5% to 7% for a $82 billion fund and invested $400 million of its own capital to meet all requests. Blue Owl, meanwhile, replaced client redemptions with promised payouts from asset sales.
Shares of BlackRock fell 5.7% on the New York Stock Exchange following the announcement, reflecting investor reaction to the news. The broader market has been sensitive to developments in the private credit space in recent months.
Recent reports from Reuters, Bloomberg, and the Financial Times detail the challenges facing the $1.8 trillion private credit industry. BlackRock’s HPS fund faced $1.2 billion (9.3%) in redemption requests in the first quarter, limiting payouts to $620 million (5%). Blackstone fulfilled 7.9% of requests, raising its limit to 7% and investing $400 million. Blue Owl repurchased 15.4% of one of its funds in January, and BlackRock wrote off a $25 million loan.
Investor sentiment towards private credit has deteriorated in recent months, with retail investors increasingly seeking to redeem their investments in funds like BlackRock’s HPS Corporate Lending Fund. These funds are often marketed to high-net-worth individuals.
Despite delivering a net-of-fees return of 9.1% last year, the HPS fund has faced increased scrutiny amid concerns about credit quality, potential business model disruptions from artificial intelligence, and inherent liquidity mismatches.
HPS maintains that its loans primarily target established private companies with stable cash flows and structures designed for priority repayment in the event of borrower bankruptcy. The fund also distributes dividends monthly, but this hasn’t fully alleviated investor concerns.
Recent bankruptcies of a U.S. Auto parts supplier and a subprime auto lender, along with the collapse of a UK property lender last week, have raised questions about lending standards within the industry.
Earlier this week, Blackstone responded to rising redemption requests by raising its usual 5% limit to 7% for a $82 billion fund, while the firm and its employees invested $400 million to cover all requests. Blue Owl repurchased 15.4% of one of its funds in January.
Blue Owl replaced client redemptions in one fund with promised payments.
Private credit funds typically gather capital from individual investors and use it to provide loans to mid-sized companies that are not easily sold quickly, creating a potential problem if many investors seek to exit their positions simultaneously.
According to reports, 19% of the HPS fund’s portfolio is tied to the software sector, which has experienced aggressive selling as investors worry about disruption from AI-focused startups.
Investors are also seeking safe-haven assets amid heightened market volatility this year, driven by concerns about an economic slowdown stemming from the ongoing conflict in the Middle East, AI-driven disruptions, and potential loan defaults.
