BlackRock’s $26 Billion Private Credit Fund Limits Withdrawls

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2:01Paul Sweeney:One of the unoccurrence out there in the marketplace is credit quality, particularly in the private credit business. We've been reading stories over the last several weeks and months, including Blue Owl, for example. And there's another about some credit tightness there and some concerns there. Then BlackRock today. Okay, BlackRock curbed withdrawals from its HPS corporate lending fund after client requests for redemption spike. I wasn't expecting BlackRock. That's just such a high-quality name. I was not expecting to see the BlackRock come into this conversation. But let's get the latest reporting there.

2:35Paul Sweeney:Brian Chapada joins his managing editor of Leverage Finance and Distressed Debt for Bloomberg News. Brian, talk to us about what's happening in the private credit market here today. Are these cockroaches, as Jamie Dimon suggests? or is this something now maybe a little bit more systematic or systemic?

2:51Brian Chappatta:Well, you know, I think you talked about at the jump, you weren't expecting necessarily BlackRock. And, you know, one of the big things that BlackRock has been pushing into is private markets and is private credits. So this HPS fund is one of the major funds that it acquired as part of its acquisition last year of HPS investment partners. So what you are seeing here in this fund is 9.3 percent withdrawal requests. And they have stated in their language, as many of these private credit funds do, if we reserve the right to halt redemptions at 5 % if they become too overwhelming for us because we can't really sell our assets.

3:24Brian Chappatta:So they threw up the gates, as they like to say. And as a result, investors aren't getting the full money back that they expected. We'll see if that continues. And if it does, that will be something that will play out over the quarters to come.

3:37Kristine Aquino:Well, Brian, BlackRock saying that this step is in line with its existing management of liquidity, as they put it. Are investors buying that? Is the street buying that?

3:48Brian Chappatta:Yeah, well, one of the things that we've kind of observed on the private credit team here at Bloomberg is that even just as recently as this week, Blackstone opted to meet all investor redemption requests, even though it was 7.9 percent in excess of that 5 percent threshold. They were allowed to go all the way up to seven. And then they also actually put some of the firm's money and some of the employees own money into kind of offsetting the withdrawal. So for a long time, we have not seen any asset manager actually say we are limiting withdrawals because it's not a good look necessarily if you can't get your full money back.

4:23Brian Chappatta:But it is, as they said, kind of part of why you got into private credit in the first place is illiquid and you get paid for that.

4:30Paul Sweeney:So Brian, what is the, is there, or put it this way, is there a consensus building as to whether there really is a systemic problem, credit problem in private credit?

4:40Brian Chappatta:Well, right now it's kind of a liquidity problem, right? There's a mismatch, I think, between maybe some of the retail investors that got into these products that kind of expect that if they want their money back, they can get their money back and do something else with it. So I think this has to all play out. And I think the question that everyone's asking is will there eventually be kind of a liquidity problem become, you know, kind of there's a feedback loop, right? like if there's for selling then prices go down that hurts returns and that necessitates kind of you know people wanting to pull their money more and it becomes this kind of very negative feedback loop we kind of saw this with um with uh commercial real estate a few years ago when when the fed was hiking rates um so we have to see how this cycle plays out and whether it continues in the coming

5:23Kristine Aquino:months and quarters and everything you need read across through the broader credit space i know that, for instance, in publicly traded credit markets, spreads have been quite favorable at the beginning of this year. We've seen a lot of issuers benefit from that. But now that we're seeing more jitters in the private credit space, is that something that you expect to ripple across the rest of the market as well?

5:44Brian Chappatta:It's a really good point. I mean, some of these private credit vehicles have leveraged loans, which are kind of more publicly traded, broadly syndicated in their portfolios so that they have some sort of liquidity. So we are actually seeing some evidence of this trickling out into the other more risky lending markets where a lot of managers are selling what they're able to and selling what's easy. And that's actually hitting loan prices a little bit more than we might expect, even though those loans are relatively higher quality and are generally doing fine. Investors are kind of trying to get liquidity where they can.

6:23Brian Chappatta:And so they're kind of selling the stuff that they're able.

6:25Paul Sweeney:Are private fund managers, are they out there in the market trying to raise capital for private credit funds? I would think this would be a tough time.

6:33Brian Chappatta:They are still. I think it was Dan Loeb who came out recently and said he was actually raising a BDC. There are pockets of fundraising that are still working. But I do think that's obviously a fair question. There's been this big, obviously, push into retail, 401ks, private markets. and it comes at perhaps not the most optimal time as there's kind of a reassessment of risk and kind of liquidity. Nobody really cares about liquidity until they do. And when they do, it can be kind of what we're seeing today.

7:05Kristine Aquino:Yeah, well, are we seeing also any signs of stress given what's happening in a broader space with Iran conflict at this moment? How is that going to play into private credit and credit markets broadly?

7:16Brian Chappatta:Yeah, it's still, I would say, early days as far as the spillover effects. But obviously, there are a lot of borrowers out there that are exposed to commodity prices, for example. And so I think those are some of the markets where you're seeing the most dramatic moves as a result of the conflict in Iran. So something that I think the credit markets have to be watching pretty closely. But for now, it was mostly just the markets kind of just really quieted down quite a bit as everybody kind of assessed what was happening and how long the conflict might be going on. So I think we'll see that maybe next week or the week after as some of these big deals come down the pike.

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9:07Paul Sweeney:Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk a little technology stocks here. Here's a note from a recent analyst who says investors are now navigating an uncertain Iran military conflict in the Middle East, adding to the nervousness already in the tech trade with the ghost, with the AI ghost trade and anthropic worries abound. The author of that note is Dan Ives, Global Head of Technology Research at Wedbush Securities here. Dan, love to get your thoughts. Dan, he's somewhere in the swamps of Jersey. I don't know where he is right now. But what is the AI ghost trade, Dan, and how has it impacted tech stocks?

9:46Dan Ives:Yeah, look, Paul, I mean, the AI ghost trade, it goes back to the anthropic worries that's crushed software this year, you know, in terms of cybersecurity software, that these LMs are going to replace the software layer. And I'd say to some extent, it's also been a huge overhang on names like Microsoft. But we continue to view it. It's a good trend. I think last week's Anthropic event earlier in the week will be the star of a bottoming event. I think we've already seen it in software. And I think it's a fictional tale. OK, a fairy tale that Anthropic is going to replace software.

10:21Kristine Aquino:Yeah, well, I'm sure, Dan, that you've read the Citrini report from a couple of weeks ago that really sparked some of these worries or continue to stoke these software worries. What's your take on that scenario? Are you in a camp that it's too much doomsday, especially because they were calling for this to, or rather it was a hypothetical scenario that they were potentially seeing play out as soon as 2028. But what are your thoughts about that?

10:49Dan Ives:I mean, that's like me saying in two years, I'm going to be in pole vault in the Olympics in LA. You could be. I mean, look, I get to each its own, but I believe we're in the early days of an AI revolution and what's going to be a secular tech bull market. Look, I get the jitters, the white knuckles that we're going through in terms of the ghost trade, words about CapEx. Obviously, Iran conflict war, which is adding to that. But it just speaks to my view like this will also pass. These are going to be opportunities to own the core tech winners in a revolution where the U.S. for the first time in 30 years is ahead of China when it comes to tech.

11:30Paul Sweeney:Dan, as it relates to risk or potential risk to software, is there a way to differentiate ones that are maybe more at risk versus less at risk?

11:40Dan Ives:Yeah, Paul, I think it's a great point. Look, I think first off, the most disconnected of all the software is cybersecurity. Like when I look like nothing is replacing the AI just increases the surface area and the miles are going to be protected. CrowdStrike, Palo Alto, Checkpoint, Z-Scale. I think that's probably one of the areas that I think is a huge misnomer. And then you look at like the sales forces, the ServiceNow, the Microsoft, like nothing is replacing that layer and that data. Palantir would be a good example. Even when you look like everything that's happened with Anthropic and the Pentagon, it's just going to increase the ability for Palantir, less reliant.

12:22Dan Ives:It's a plug and play in terms of the models. Are there coming to the UI path? Some others that have maybe more one trick pony business models that could be disintermediated? Yeah. But you can't paint them all at the same brush. And that's why this is the most disconnected sell-off that I've seen in my history on Washington going back to the late 90s.

12:42Kristine Aquino:Yeah, well, Dan, I know that you've also written recently about how the tech trade and the developments in that space connects to the broader macro environment that we're seeing. Obviously, the Iran conflict driving a lot of price action this week. What are your thoughts around that then? How does this new catalyst kind of further upend what we're seeing in the tech space at the moment?

13:04Dan Ives:Look, I think right now, like investors are trying to put pieces of the puzzle together. And the puzzle keeps getting thrown apart, right, in terms of like other risk and other fears. I think at the end of the day, you take a step back. The anthropic fears, the ghost trade, that is way disconnected in terms of what I see It's happening in software and broader tech. The CapEx dollars are going to continue to increase. And even though you're going through these jitters, that's not going to stop. That's going to continue to accelerate. I think when you look what's happening, you know, with Iran, conflict and war and what this is doing, to some extent, military is going to just have to rely more and more on technology players.

13:48Dan Ives:And I think that's playing in. We've talked about like our top 10 names. There's names like Planet Labs. There's names like Voyager, you know, of course, like, you know, safety tech names, cybersecurity names like Palantir. I think tech investors need to navigate this uncertainty, but own the winners. And you cannot get caught on what's still the long term thesis that we're less than a third of the way through.