Blackstone Defends Private Credit Fund Quality Amidst Investor Redemptions

Jon Gray, President and Chief Operating Officer of Blackstone, has publicly defended the credit quality of loans within the firm’s flagship private credit fund, BCRED, following significant investor withdrawals. In the most recent quarter, investors pulled nearly 8% from the fund, which Blackstone touts as the largest private credit fund globally with approximately $82 billion in invested assets.

The alternative asset management giant disclosed in a late Monday filing that it facilitated investor redemptions amounting to 7.9% of BCRED. This was partly achieved by allowing the firm’s own investors to inject $150 million into the fund, a move that contributed to a sell-off in Blackstone shares, which saw a decline of up to 8.5% in morning trading on Tuesday. Other private credit peers also experienced stock price drops.

Addressing concerns about the fund’s underlying assets, Gray told CNBC’s David Faber, "When you think about credit quality, the 400-plus borrowers here, they had 10% EBITDA growth last year. So when we look at this, we feel pretty darn good." EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is a key metric for assessing a company’s financial performance.

However, recent actions by alternative asset managers, including allowing investors to cash out of funds, have amplified existing anxieties surrounding the private credit market and loans specifically within the software industry. Last month, Blue Owl announced it had found buyers for $1.4 billion of its loans, a move partly intended to facilitate the exit of 30% of investors from one of its struggling credit funds.

With Blackstone, a considerably larger asset manager, now caught in this trend, concerns regarding private credit appear to be expanding. A spokesperson for Blackstone clarified that the firm and its employees’ investment in BCRED was aimed at "meeting 100% of requests for the quarter with certainty and timeliness." The spokesman also highlighted that the fund has delivered 9.8% annualized returns since its inception for Class I shares.

Gray acknowledged the increased scrutiny, stating to CNBC, "We’ve had a ton of noise. As you guys know better than anybody in the press, this has become a story."

The current unease in the private credit sector was initially triggered last fall by the collapse of firms like Tricolor and First Brands, both of which had received funding from banks, according to the Blackstone executive. "There’s a constant spin cycle, and so when that’s happening, it’s not a surprise that investors can get nervous," Gray commented. "Financial advisors can say, ‘Hey, I want to redeem.’"

Despite the broader concerns, loans to software companies represent BCRED’s largest single exposure, accounting for roughly 25% of the fund’s holdings, according to disclosures. While Gray conceded that "there are software companies that will be disrupted" by the advancements in artificial intelligence in the coming years, he emphasized that debt lenders hold a senior position to equity holders and that many software companies are resilient and difficult to displace.

Gray concluded by observing a disconnect between the real-world performance of underlying portfolios and the prevailing narrative in the news cycle. "There’s this disjointed environment now between what’s happening on the ground with underlying portfolios and what’s happening in the news cycle," he said. "Ultimately, these things will resolve themselves."