Blackstone private credit fund caps withdrawals as redemption requests jump

By Arasu Kannagi Basil and Isla Binnie

NEW YORK, June 4 (Reuters) - Blackstone has capped withdrawals at its ​flagship private credit fund as redemption requests rose in the second quarter, the world's largest alternative asset manager said on Thursday, following many peers.

Investors sought to pull out 10% of shares in the second quarter, compared with 7.9% in the previous quarter, from the $79 billion Blackstone Private Credit Fund (BCRED). It limited withdrawals to 5%, the customary threshold for these vehicles.

The attempts to cash out indicate wealthy individuals are continuing a recent retreat after many years of piling into funds that give them exposure to assets that rarely trade. They pulled more money out of funds like BCRED at the beginning of this year than they put in, a first for the asset class.

While most fund managers had capped redemptions at 5% in the first quarter, Blackstone raised the threshold to pay back all the money requested. The company and some employees pooled money to help meet all the redemption requests.

But it said in a statement on Thursday that the limits were deliberate and designed to replace immediate access to capital with the prospect of better long-term returns.

"BCRED's structure is a fundamental feature, with investors exchanging some liquidity at times for long-term outperformance," it said in a statement.

Analysts said the requests were in line with or lower than they expected, but flagged concerns about continued investor demand for the funds.

"We think 10% is better than feared," Evercore analysts said in a note, comparing the increasing redemptions with those seen at a $31.3 billion Cliffwater fund earlier this week.

Non-traded business development companies (BDCs), like BCRED, generally offer to buy back some shares every quarter.

But fewer new buyers came in to the fund in the period, leading to net outflows of about 3% of the fund. "The big slowdown in gross sales this quarter is a larger, and more prolonged issue, in our view, for both BCRED and the industry," the Evercore analysts said.

Blackstone's shares rose 8%, with many peers following suit. The stock had fallen on Wednesday after Switzerland's Partners Group limited redemptions from a private equity fund and investors braced for more.

Private credit funds and analysts say limiting withdrawals cuts the risk of forced asset sales.

Blackstone said the repayment calendar was "aligned with the expected repayment cycle of investments, while preserving capital to deploy in attractive market environments."

OTHER PRODUCTS FOR THE WEALTHY

BCRED remains well capitalized, with loan repayments combined with inflows outpacing share repurchases, the fund said. Its Class I shares have delivered a 9.3% annualized total return since inception, which the firm said represents a 50% premium to leveraged loans.

Repurchase requests slowed down in the latter half of the period investors were given to file them, the fund said. Its tender offer ran from May 1 to May 29.

Blackstone also it had seen an acceleration in gross fundraising across its other private wealth products.

Other private asset firms, including Blue Owl, have reported more appetite for asset classes including real estate from wealthy investors, as private credit stayed out of favor.

The fund said markets were stabilizing after volatility earlier in the year, and that deal activity was increasing with debt paying higher yields compared to the first quarter.

Q2 REDEMPTION CYCLE IN FOCUS

Redemption windows at key U.S. non-traded private credit funds for the second quarter began closing last Friday, and now market participants are keeping a close eye on the results.

A top asset management executive said last week the requests were expected to remain high throughout the year.

Partners Group also flagged more withdrawal requests on Thursday, a day ‌after its shares plunged on news that it had capped a key fund.

Tender offer windows across major U.S. private credit funds are poised to expire throughout June.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Sriraj Kalluvila, Shinjini Ganguli and Nick Zieminski)