Blackstone private credit fund continues to restrict investors selling shares.

With some investors in illiquid private credit funds this year seeking liquidity, the Blackstone Private Credit Fund, known as BCRED, told customers before the holiday weekend it was capping withdrawals from the fund at half of investors seeking to sell shares back to the fund.

“Overall repurchase requests in Q3 were an estimated $4.3 billion, representing approximately 10% of shares outstanding,” according to a letter last Thursday from Blackstone to investors. “BCRED will fulfill repurchase requests representing 5% of shares outstanding.”

BCRED is a semiliquid fund, meaning it does not trade daily on an exchange. When financial advisors are selling such funds to clients, part of the marketing pitch is that the funds sit on cash or short-term securities in order to enable buybacks of shares each quarter, usually at 5% of the fund’s shares outstanding.

BCRED is a nontraded BDC; the result is limited liquidity for investors. Such alternative investments are designed to boost yields in clients’ portfolios but illiquidity can pose a risk.

It has been tough sledding of late for retail private credit funds like BCRED. The fund in June reported that, for the quarter ending June 30, clients’ repurchase requests were approximately 10% of shares outstanding. At the time BCRED said it was buying back 5%.

“Investors who sought liquidity in Q2 and Q3 will have received an estimated 75% of their requested capital within approximately 90 days,” according to the company. “Capital inflows during the quarter were approximately 2% of NAV, resulting in a net outflow of approximately 3% of NAV, in line with the prior two quarters.”

The fund has about $80 billion in total assets.

BCRED’s Class I shares “have delivered a 9% annualized total net return since inception, a nearly [300 basis points] premium to leveraged loans,” a company spokesperson wrote in an email.

A series of missteps last fall by prominent BDC manager Blue Owl Capital triggered clients’ and their financial advisors’ concerns for the private credit funds, which have seen a spectacular sales boom in the past half-decade.

Traded and nontraded BDCs are funds that act like mini-banks and finance the loans of mid-sized private companies. They have exploded in popularity since the 2008 credit crisis, with lending restrictions placed on banks opening up the market.

And investors have woken up to worries about BDCs’ exposure to loans to private software companies, which are under pressure because of the potential for artificial intelligence to wipe them off the map.

InvestmentNews reported last month that customers and clients of financial advisors sold back or redeemed $5.9 billion of shares to nontraded business development companies in the second quarter, according to alternative fund tracker Robert A. Stanger & Co. Inc., raising the total of investor funds sold back to companies to $12.7 billion this year. 

With advisors’ clients in retreat, it’s a staggering turnaround for an asset class that had been white hot for the past several years.