Investors in Blackstone’s flagship private credit fund asked for their money back this quarter. Half of them won’t get it.
The $79 billion Blackstone Private Credit Fund (BCRED) told shareholders on Thursday that withdrawal requests hit 10% of its outstanding shares but the fund will honor just 5%.
It is the first time BCRED has ever capped redemptions.
The cap works out to about half of what investors wanted, according to a regulatory filing.
Last quarter, the fund did something more theatrical. Requests hit what was then a record 7.9%, higher than the quarterly 5% cap at which Blackstone is technically allowed to deny requests.
However, rather than turn anyone away, Blackstone tapped its own employees to fund the difference out of their personal accounts.
This quarter, with requests even higher, employee checkbooks stayed closed.
Private credit might not have been the cause of crypto’s rough week this week, but the two certainly declined together. Bitcoin led a broad sell-off, trading near $64,000 at time of writing and down 13% over the past week.
Given that tens of millions of US residents own crypto, many fund redemption requests came from the same crypto investors suffering these simultaneous drawdowns.
Tokenized private credit
Crypto players began piling into private credit a while ago, offering essentially the same products in a digital wrapper. Today, many stablecoin and altcoin treasury managers allocate capital directly to private credit funds.
Unfortunately, the same retail appetite that piled into illiquid yield products in traditional finance has been retreating, selling off tokenized proxies alongside real funds.
For example, ACRED, a tokenized feeder into Apollo’s Diversified Credit Fund, has lost 13% of its market cap over the last three weeks — its first reduction since inception after weeks of unbroken, consecutive upticks.
As Protos has previously documented, the same managers gating traditional credit funds have been tokenizing it on blockchains, where on-chain buying is instant and redeeming often takes weeks or months.
Crypto’s contribution to private credit was a change in speed as to how fast investors could buy. It did nothing to change the wait period to exit these illiquid funds.
In the meantime, a bad loan stays a bad loan, whether a smart contract wraps it or a quarterly tender offer rations it. This week, the largest private credit fund on the planet told half its investors the same thing: not yet.
The bear market continues in private credit
BCRED limits quarterly withdrawals to 5% of shares. When more investors want out than that, private credit managers slice everyone’s request down.
Any investor who requests a dollar receives 50 cents, with the rest locked in the fund until next quarter, when the same queue forms again.
Read more: Private credit firms prepare for bank run-type panic by gating investor withdrawals
BCRED is also hardly alone. Year to date, the common stocks of private credit giants Apollo, Ares, Blackstone, Blue Owl, and KKR are all lower, despite an 11% benchmark rally in the S&P 500 over the same time period.
Cliffwater’s $31 billion Corporate Lending Fund got hit with requests for 17% of its shares this week and is returning about one-third of those requests. The prior quarter, Cliffwater investors asked for a 14% redemption and received roughly half.
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