Explained: Why BlackRock stock tanked 7% after curbing withdrawals from flagship fund

Shares of BlackRock fell sharply on Friday, dropping as much as 7.2%, after the world’s largest asset manager restricted withdrawals from a flagship private credit fund, highlighting growing investor anxiety around the $2 trillion private credit industry.

The stock ended at $955 on the New York Stock Exchange, also weighed down by a broader market selloff following weaker-than-expected US jobs data and escalating tensions from the ongoing US-Israeli war with Iran.

At the centre of the development is BlackRock’s $26 billion HPS Corporate Lending Fund (HLEND), which has seen a surge in redemption requests from investors. The fund received withdrawal requests worth $1.2 billion in the first quarter, equivalent to about 9.3% of its net asset value. BlackRock said it would pay out $620 million as part of the quarterly redemption, reaching the 5% threshold that typically allows managers of such funds to restrict further withdrawals.

HLEND, a business development company that BlackRock acquired along with its manager HPS Investment Partners in a $12 billion push into private credit in 2024, said redemption requests breached the 5% limit for the first time since the fund’s launch.

Business development companies typically raise money, largely from retail investors, and use those funds to extend loans to mid-sized companies. These loans are often difficult to sell quickly. If a large number of investors seek to withdraw money at the same time, it can create liquidity challenges for the fund.

BlackRock said the redemption cap helps prevent a structural mismatch between investor capital and the duration of the private credit loans in which the fund invests. By limiting withdrawals, fund managers can avoid selling assets at unfavourable prices, which could hurt returns for remaining investors.Recent credit events have also added to the unease. Last year saw bankruptcies involving a US auto parts supplier and a subprime auto lender. More recently, a UK mortgage lender collapsed last week, raising fresh questions about lending standards in the sector.The pressure is not limited to BlackRock. Earlier this week, rival Blackstone raised the usual 5% redemption cap on an $82 billion fund to 7%. The firm and its employees also invested $400 million to ensure all withdrawal requests could be met. Blue Owl, another player in the sector, bought back 15.4% of one of its funds in January and replaced client redemptions with promised payouts.

Despite the surge in withdrawals, HLEND continued to attract some new capital. Subscriptions totalled $840 million in the first quarter, although this was lower than the $1.2 billion investors had originally sought to redeem.

According to reports, about 19% of HLEND’s portfolio is invested in software companies. The sector has faced heavy selling recently as investors worry about disruption from AI-first start-ups. The fund says its loans are mainly extended to mature private companies with stable cash flows and are structured to be repaid first if a borrower goes bankrupt. HLEND also distributes dividends to investors on a monthly basis.

The developments come at a time when investors are increasingly moving money into safer assets amid heightened market volatility, concerns about a possible economic slowdown and uncertainty linked to the ongoing conflict in the Middle East.

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