BlackRock ( BLK ) has limited withdrawals from one of its largest private credit funds after a surge in redemption requests, adding to growing signs of pressure on the rapidly expanding $2 trillion private credit market.
The world’s largest asset manager said it would limit withdrawals from its $26 billion HPS corporate lending fund after investor redemption requests exceeded the fund’s quarterly liquidity limit. Investors wanted to withdraw $1.2 billion, but the fund approved $620 million, meeting the 5% quarterly limit that allows managers to withdraw money.
The development marks the first time HLEND has raised its redemption cap and follows similar moves by other major alternative asset managers, raising questions about whether the industry’s long credit boom may be facing its first real test.
BlackRock shares fell 6.7% on Friday amid a broad market sell-off fueled by weaker-than-expected U.S. jobs data and geopolitical tensions fueled by the escalating Israel-Iran conflict.
BlackRock’s decision comes after similar pressures emerged elsewhere in the industry.
Earlier this week, Blackstone ( BX ) temporarily raised the redemption limit on its $82 billion credit fund from 5% to 7% and injected $400 million in firm capital to offset investor outflows. Earlier this year, Blue Owl Capital ( OWL ) withdrew 15.4% of its funds to accommodate client redemptions.
Together, these moves signal a shift in investor sentiment toward private credit funds that have seen huge inflows over the past decade.
Much of the redemption activity comes from wealthy individual investors, who have become a major source of funding for private credit strategies traditionally dominated by pension funds and institutions.
Private credit funds such as HLEND lend to mid-sized companies that cannot easily access traditional bank financing. These loans are usually illiquid and can take years to mature.
But many funds allow investors to withdraw capital periodically, often quarterly, creating a structural strain if too many investors want their money back at once.
HLEND said the 5% redemption cap is in place to avoid a “structural mismatch” between investor liquidity and the long term of its loans.
If managers are forced to liquidate assets quickly to meet outflows, they may be forced to sell loans at steep discounts, hurting returns for remaining investors.
Recent delinquency pressures are also building as several high-profile corporate credit failures have begun to undermine confidence in lending markets.
The bankruptcies of auto parts supplier First Brands and subprime auto dealership operator Tricular last year have prompted renewed scrutiny across Wall Street about underwriting standards in the traditional and private credit markets.
The failure exposed the lenders after a number of financial institutions disclosed the companies’ debts.
JPMorgan CEO Jamie Dimon warned at the time that such failures could be early indicators of deeper credit problems.
“When you see a cockroach, there’s probably more,” Dimon said during the earnings call. “These are early signs that there may be some excess there as we’ve run the credit market bull since 2010.”
JPMorgan ultimately wrote off $170 million related to Tricolor’s bankruptcy, while other banks disclosed smaller exposures.
The collapse of First Brands has drawn additional scrutiny as a creditor claimed $2.3 billion may have gone missing from the company’s finances, prompting an investigation by the US Department of Justice.
While banks have largely described these incidents as isolated pockets of stress, investors fear they could mark the beginning of a broader deterioration in corporate credit quality after a decade of easy financing.
BlackRock’s exposure to the personal credit market expanded significantly in 2024, when the company acquired HPS Investment Partners for about $12 billion.
The acquisition was part of a strategic push into private lending, a sector that exploded as banks retreated from corporate lending following post-financial crisis regulations.
Private equity funds now finance everything from software companies and healthcare companies to manufacturing businesses, often providing loans that have higher yields than public market debt.
HLEND says its portfolio focuses on mature private companies with stable cash flows and debt structures that are repaid first in bankruptcy.
The fund also pays monthly dividends, making it attractive to income-oriented investors.
According to a fund disclosure, about 19% of HLEND’s portfolio is tied to software companies, a sector that is under heavy selling pressure as investors worry about disruption from AI-driven startups.
At the same time, macroeconomic conditions have become more volatile.
Markets are grappling with:
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Rising geopolitical tensions in the Middle East
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Concerns about slowing economic growth
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Technical hurdles from AI
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Rising corporate debt defaults
These pressures have forced some investors to shift capital to safer assets.
Despite the recent increase in liquidity, private credit managers are broadly optimistic about the asset class.
Institutional investors, including pension and sovereign wealth funds, continue to allocate capital to private credit strategies, according to Blackstone President Jon Gray.
And HPS Investment Partners said the current market turmoil may actually create attractive lending opportunities.
In a statement, the company said it sees an opportunity to “lean into volatility” as traditional lenders recover.
Still, the latest wave of liquidity restrictions highlights a central tension in the private credit boom: funds offer cyclical liquidity while investing in assets that can take years to sell.
If redemption requests continue to rise at many funds, analysts say the industry could face a wider test of whether its liquidity structures can withstand continued declines.
For now, BlackRock’s exit restrictions serve as a reminder that after more than a decade of easy credit conditions, the first cracks may be beginning.
As of the date of publication, Caleb Naismith had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
