BlackRock curbs redemptions at HPS private credit fund as investors weigh risks

BlackRock has moved to cap investor withdrawals from a flagship private credit vehicle, underscoring growing stress in a corner of the market that many wealth firms have leaned on for yield and diversification.

The asset manager said Friday it is limiting redemptions at the HPS Corporate Lending Fund after a jump in investors asking for their money back.

As reported first by the Financial Times, the fund, which manages about $26 billion, received roughly $1.2 billion in withdrawal requests in the first quarter, or about 9.3% of its net asset value. It will pay out $620 million, hitting a 5% quarterly threshold that allows BlackRock to restrict further redemptions under the fund’s terms.

BlackRock shares fell in early trading after the news, extending a slide that has tracked rising concern about private credit exposures.

The move follows steps by other large players: Earlier this week, it was revealed that Blackstone moved past its usual 5% redemption cap to 7% amid a surge of investor requests; the firm and its employees also invested $400 million to help honor investor requests, according to Reuters. Last month, Blue Owl also shifted the mechanism for payouts in its Blue Owl Capital Corp. II fund from quarterly tender offers to periodic capital distributions funded by asset sales and repayments.

For advisors and RIAs that have steered clients into private credit funds, the redemption pressure is a reminder that these products sit on top of inherently illiquid loans. Managers promise periodic liquidity, but it's not always possible to sell the underlying corporate debt without significantly impacting prices. That liquidity mismatch becomes more obvious when markets turn volatile or sentiment sours.

HPS Investment Partners, which runs the corporate lending fund, framed the gating decision as a way to keep cash on hand for new deals. “In our judgment, preserving the fund’s available capital to lean into this perceived opportunity set, while providing liquidity to shareholders consistently with the fund’s designed parameters, is in the best interest of the fund as a whole,” it said in a statement reported by Reuters.

BlackRock agreed last year to acquire HPS in a roughly $12 billion transaction as part of a broader push into private lending, a business that has ballooned to an estimated $3 trillion in assets. The firm has pitched the strategy as a way to access higher yields in a regime of higher-for-longer rates, while offering a measure of diversification away from traditional public markets.

Read more: HPS founder confirms private credit giant almost IPO'd before BlackRock sale

But those selling points now sit alongside a series of headline risks. A Wall Street Journal report last month detailed how an HPS-led lending group was wiped out on a more than $400 million loan backed by what the firm has alleged in court was a web of fake invoices tied to telecom entrepreneur Bankim Brahmbhatt.

Separately, private credit investors have been hit the high-profile bankruptcies at companies including auto-parts supplier First Brands and subprime auto lender Tricolor, where lenders have alleged collateral was misrepresented. Some in the industry have warned that more problems could surface as credit conditions tighten. “When you see one cockroach, there are probably more,” JPMorgan Chase chief executive Jamie Dimon told investors last fall, referring to private credit defaults.

Amidst the fallout from that episode, Western Alliance Bank has launched a lawsuit in New York Supreme Court against Jefferies – whose Point Bonita fund had taken a loan from the bank collateralized by receivables from First Brands – as the lender found out $126.4 million in forbearance payments would not be made.

"The Point Bonita fund acted in good faith and with goodwill toward the Bank at all times," Jefferies said in a statement Friday. "Unfortunately, First Brands and its leadership perpetrated a wide-ranging and well-concealed fraud that impacted Point Bonita and the Bank."

"We regret that the Bank, as well as a range of lenders to and around First Brands, will suffer losses as a result of this fraud," Jefferies continued, asserting its belief "that the lawsuit is without merit."