The private debt industry is facing “growing pains” rather than a liquidity crisis as the asset class expands to include broader investors, according to Vistra Fund Solutions, following Blackstone’s decision to close a buyout after a surge in withdrawal requests.
This week, Blackstone Private Credit Fund (BCRED) reported an increase in redemption requests during the second quarter, with investors seeking to divest 10% of shares. However, the fund said it would only honor requests up to its quarterly redemption limit of five percent.
BCRED, the world’s largest private debt fund, was one of the least liquid private debt funds to report higher withdrawal activity in the second quarter – although the fund said redemption requests were reduced in late May, suggesting outflows may be higher.
Investors requested to use around 10 per cent of shares in the $79bn (£59bn) fund in the second quarter, compared with 7.9 per cent in the first quarter. But BCRED has suspended withdrawals with its five percent quarterly repurchase limit, effectively securing the fund — a common mechanism for this type of vehicle to help manage cash.
In response to the news, Caroline Baker, EVP, fund solutions, Americas at Vistra, said that the recent rescue activity is “an indication of private debt funds working as intended” and that “redeem limits are a necessary feature of structures designed to protect long-term investors by preventing managers from selling assets at depressed prices during periods of upswing”.
“What the industry is facing is a small problem of liquidity and the growing pains of the asset class that attracts a wide range of investors. Since private debt is available in terms of green and semi-liquid assets, it is important that expectations regarding liquidity remain in line with the real nature of the asset,” he said.
“The top priority for management now should be transparency, clear communication and educating investors.”
Read more: Semi-liquid properties: a double-edged sword
Several of the largest asset managers, including Blue Owl and BlackRock, have faced increasing demands for redemptions as retail investors grow wary of the asset class, particularly its exposure to software and the potential effects of AI.
However, Blackstone said redemption requests were reduced in the second half of May, and Blackstone shares rallied after the announcement. The company said it believes this growth is due to a period of market uncertainty and that there are still opportunities for business loans.
In a statement to investors this week, Blackstone said: “We are entering an investment climate that we believe is very compelling to lend directly to companies. After a period of volatility earlier this year, markets are recovering, and deal activity is growing with a wider spread compared to the previous quarter.”
Blackstone said this week that BCRED holds more than $15bn in cash, including cash and undrawn borrowing capacity. It also said last month that “increasing media attention and market attention on private debt, as well as concerns about declining performance” were behind the increase in bailouts.
The news comes after Partners Group also decided to limit withdrawals from its $8.6bn Global Value SICAV fund by five per cent earlier this week after redemption requests reached 9.8 per cent, Bloomberg reported.
Read more: The outlook for the Blue Owl fund was cut by Moody’s after the rescue operation
