What about Blackstone's $50 billion credit fund?

What about Blackstone’s $50 billion credit score fund?

Blackstone Actual Property Revenue Belief made headlines for the fallacious causes final week. However Blackstone additionally has an analogous funding fund targeted on company debt that has but to come back beneath comparable scrutiny. We suspect that can change.

Whereas BREIT buys actual property, Blackstone Personal Credit score Fund (BCRED) lends cash to firms. Regardless of solely celebrating its first birthday in February, BCRED had amassed a $50 billion portfolio of company loans as of Oct. 31, in keeping with its web site.

That makes it nearly as large as Pimco’s Complete Return Fund, the bond fund that Invoice Gross at one level changed into the world’s largest funding automobile (though when you take out leverage, BCRED’s internet asset worth is about $22 billion).

And there are nonetheless a number of months left to enter the horrible twos. Some tidbits from the most recent truth sheet (knowledge from late September):

Since final week, many of the fast focus has been on BREIT, its significance for Blackstone and whether or not its mushy gating might set off contagion elsewhere within the property trade. The $14.6 billion Starwood Actual Property Revenue Belief has already introduced comparable withdrawal limits for buyers.

However how weak is the smaller however nonetheless thick BCRED to BREIT-like restrictions on investor withdrawals?

As you possibly can see from the above truth sheet, nearly the entire publicity is to floating fee, which is helpful in a rising rate of interest atmosphere. And the overwhelming majority of BCRED’s loans are senior and senior secured, which is considerably encouraging given rising fears of a recession and the turning credit score cycle.

Much less good is its 29 % allocation to software program and IT, given the trade’s present woes. BCRED additionally has an analogous charge construction and withdrawal course of to BREIT – structured as share buybacks at internet asset worth – however solely guarantees quarterly withdrawals, in comparison with BREIT’s month-to-month liquidity. And each have comparable redemption limits, which may change to a full gate at Blackstone’s discretion:

Quarterly tender gives are anticipated however not assured. Quarterly repurchases are restricted to five.0% of the overall variety of shares excellent (both by variety of shares or complete NAV) on the finish of the earlier calendar quarter. Shares not held for one yr will probably be repurchased at 98% of internet asset worth. The Board of Administrators could modify, droop or terminate these share repurchases at its sole discretion if it believes that such motion is in one of the best pursuits of the shareholders.

That could possibly be helpful, since most of BCRED’s portfolio consists of illiquid, custom-made “unitranche” loans which are troublesome to promote rapidly if it wants to lift cash for outflows.

Blackstone advised FTAV it had internet inflows within the quarterly tender window that ended Nov. 30, and whereas it expects 5 % of its shares to be redeemed, it intends to satisfy these in full. Right here is the corporate’s assertion:

BCRED is effectively positioned with 100% floating fee and 94% senior secured loans and 0 defaults. We noticed constructive internet flows this quarter as buyers sought compelling returns on high-quality, low-volatility belongings. Share repurchase requests are anticipated to be roughly 5% of BCRED’s excellent shares on September 30, 2022, and we plan to meet all repurchase requests this quarter.

Even leaving apart the specifics of “plan to honor” and “this quarter,” there are different areas of concern. For instance, the efficiency hole between the personal non-traded BCRED and comparable(ish) “enterprise growth firms” is sort of as stark because the hole between BREIT and listed actual property funding trusts.

Whereas BCRED’s complete return is mainly unchanged this yr (relying considerably on the charge class), all public BDC shares have fallen this yr, in some circumstances sharply. Shares in Blackstone’s personal listed BDC – Blackstone Secured Lending Fund – have additionally fallen greater than 28 % in 2022

Line chart of year's share price return (%) showing BDC's battered 2022

(Blackstone mentioned the poor efficiency of its listed BXSL is partly on account of the truth that it now trades at a 7 % low cost to its NAV following a rise in its free float, nevertheless it nonetheless begs the query of why the listed and public NAVs differ a lot .)

The extra subdued redemptions from BCRED might additionally change now that Blackstone has restricted withdrawals from its actual property fund, as JPMorgan analyst Kenneth Worthington wrote final week:

We additionally be aware that issues in BREIT can also weigh considerably on BCRED. Whereas gatekeepers see BCRED as a separate product, we have nonetheless seen BCRED’s turnover gradual as effectively. Given the pipeline of redemptions for BREIT in November, we see gross sales of BREIT and BCRED seemingly beneath stress in 1H23.

FT Alphaville was due to this fact to see that Blackstone in the present day introduced one other enhance in BCRED’s month-to-month distribution once more, by round 10 % to $0.21 per share.

That leaves its payout equal to an annual return of round 10 %, relying on the share class. Blackstone attributed this to rising revenue from its floating fee debt portfolio and the truth that BDCs should pay out 90 % of their revenue.

However given the latest information movement, it additionally appears to be like like a well timed enticement for buyers to remain, thanks.

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