Sudden plunge! Breaking news in the financial world: Redemption restrictions!

【Introduction】Redemption pressures surge as BlackRock’s $26 billion private credit fund explicitly activates redemption gates

Brothers and sisters, after the Iran war, unexpectedly, a liquidity crisis has also arrived.

Last night, the US stock market saw the largest asset manager, BlackRock, stock plummet by 7%.

On the news front, BlackRock has restricted redemptions for one of its large private credit funds after a significant increase in client redemption requests. This is the latest sign of investor anxiety over the $1.8 trillion private credit industry.

The company’s $26 billion HPS Corporate Lending Fund (HLEND) is one of the largest non-listed Business Development Companies (BDCs). The fund stated on Friday that shareholders requested to redeem 9.3% of their shares, but management decided to limit the buyback to 5%.

The total value of these shares is about $1.2 billion, but investors can only recover approximately $620 million, which is the amount of liquidity available for redemptions as of the end of last year.

This is the most notable redemption “gate” (redemption restriction) case among large private credit funds since the end of last year. At that time, the collapse of some well-known companies triggered concerns about lending standards, and investors grew increasingly uneasy about this asset class. Previously, many fund companies typically met higher redemption demands or repaid investors through other means.

BlackRock stated that this move aligns with its existing liquidity management mechanism for its flagship retail direct lending product, HLEND, and is a “fundamental” design feature of this investment product.

BlackRock said, “Without this mechanism, there would be a structural mismatch between investors’ funds and the maturity of the private credit loans in which HLEND invests.”

Last month, this non-listed BDC proposed a maximum buyback of 5% of shares as per usual practice. In the previous cycle, the fund faced about 4.1% redemption requests.

As market concerns about the industry’s lending practices and exposure to companies potentially disrupted by artificial intelligence grow, private credit funds are preparing for a wave of redemptions.

HPS Investment Partners, one of the largest alternative credit management firms, was acquired by BlackRock last year as part of BlackRock’s strategy to expand its private asset business.

HPS executives stated on Friday that restricting redemptions will help the fund seize “attractive investment opportunities” amid current uncertain and highly volatile conditions.

Analysts say that as redemption requests begin to exceed the usual 5% threshold, companies like BlackRock face tough choices: whether to provide liquidity to clients. “The decision to keep the redemption limit at 5% for HPS is correct because it maintains the integrity of non-listed investment tools, prevents forced asset sales, and avoids increasing leverage. Semi-liquid funds are inherently designed and marketed as products with limited liquidity, especially during market stress periods.”

Another BlackRock private credit fund—the BlackRock Private Credit Fund—had assets of about $2.2 billion as of the end of last year. On Friday, it also disclosed that investors requested to redeem 4.5% of their shares. The fund will fully meet these redemption requests.

Other asset management firms are also taking measures to avoid restrictions like those at HLEND.

Earlier this week, Blackstone’s flagship private credit fund met a record 7.9% redemption request, partly by the company and its employees contributing to cover some of the redemptions.

In January this year, Blue Owl Capital allowed investors in a technology-focused fund to cash out about $527 million, representing approximately 15% of the fund’s net assets.

In addition to BlackRock, the stock prices of alternative asset management firms like KKR and Ares Management have also fallen sharply.