Private credit in crisis: BlackRock limits redemptions to 5%, Blackstone at 7.9%, Blue Owl loses 10% in one day
Credits: stockanalysis.com
Considering the ongoing war in the Middle East, there are a lot of economic news, I'll just skip the usual oil and gas and instead turn my attention to a product called "private credit", which has been sold wrongly as the safe haven of modern finance. I don't know how many people know about it, so what is this private credit? Simply put, large funds raise money from pension funds, insurance companies, and investors, and lend it to businesses that cannot or do not want to turn to banks, offering above-average returns with seemingly controlled risk. Too nice to be real right? In fact the problem is that these loans are not easily tradable, they are not traded on public markets, so if many investors want to withdraw their money at the same time, the fund may find itself short of liquidity. And this is exactly what is happening right now,
pushed by the war in Iran too many people to handle for the funds, have decided to withdraw their money and do problems are coming out.
Blackrock for example, with the HLEND fund, has activated what's called "gates": quarterly redemptions have been limited to 5%, while investor requests had exceeded 9% of the capital. Speaking of numbers, out of the 1.2 billion dollars requested, only 620 million were refunded. There you go, too much money in the fund and insufficient liquidity to satisfy everyone.
Similar situations are occurring elsewhere. Blackstone, with the BCRED fund, recorded redemption requests amounting to 7.9% of the total value, forcing the fund to use its own capital to avoid a freeze. Blue Owl Capital, on the other hand, permanently suspended liquidity in some segments, causing the stock to drop by 10% in just one day.
As wrote earlier, the problem is that these funds promise immediate access to capital if you want to withdraw, but hold loans that are difficult to resell quickly and so those "gate" precautions are triggered (they are legally present in the contract) otherwise there would be a general collapse.
Investing in private credit means accepting the risks of freezes with "gates". You need to be informed and understand what’s really behind those too good returns, otherwise, you might get burned. Think carefully, every insolvency, every geopolitical event can trigger a domino effect, because then panic sets in and everyone wants to withdraw, but the fund doesn’t have the liquidity to pay. Ignoring the cracks in the system doesn’t make them disappear, it just moves the problem further down the road, until the system is seriously tested, as is happening now (and perhaps even worse if the war continues for a long time).
https://www.privateequitywire.co.uk/blackstone-credit-fund-meets-record-7-9-redemption-requests/
https://www.reddit.com/r/Economics/comments/1rpzdlw/private_credit_in_crisis_blackrock_limits/
https://www.reddit.com/r/StockMarket/comments/1rq6woz/private_credit_in_crisis_blackrock_limits/
https://www.reddit.com/r/wikifolio/comments/1rqf3bj/private_credit_in_crisis_blackrock_limits/
This post has been shared on Reddit by @davideownzall, @theworldaroundme, @blkchn through the HivePosh initiative.
100% agree one shall know what to invest into.
I do wonder why people want to go in and out of such fund so quickly. I mean, it is high risk because it funds private businesses, those with a higher risk level for the reasons you given, because - for instance - a bank would not have given money. When going for high risk funds, I would assume: 1) go in for the longer run, 2) enter with only a 'little' part of the investment portfolio not needed for the short/mid term. Since most of us already learned/know, going in and out too quickly without being an expert trader, usually means: Leaving all the profits to others.
I must admit, I learned this myself the hard way! Thought I was a trader, based on a combination of charts and fundamentals and a great gut feeling plus a super logical and rational mind. But then, I learned my emotions are part of the equation as well, as greed was. For so many, this is the same. While the hobby traders sell when prices go down, institutionals and other professionals usually buy. Unless it wasn't a sound investment at all, but then again, institutionals and professionals wouldn't have invested in the first place 😉
Anyways, enough about me. I agree with you and join your call: "Be careful in what you invest in. Be extra careful when promised returns are higher than what is common."
Your reply is upvoted by @topcomment; a manual curation service that rewards meaningful and engaging comments.
More Info - Support us! - Reports - Discord Channel
🙏
yep, doesn't really make much sense enter and get out fast from those expecially if those gates can be activated and everyone panics when geopolitics start doing some fireworks... afterall if banks are not willing to give that loans there must be a reason right?
emotions are part of us, and if it was so easy to control them, there would be more rich people
So true 🎶
In this case, I don't see anything serious at the moment. It's just a temporary liquidity crisis. If the funds didn't limit withdrawals, they would have to sell their assets to cope, suffering a significant penalty, and investors would lose a lot of money.
As long as the investment fund's assets don't become uncollectible, there's no problem.
i don't know, if the war will last months, people might panic even more and start requesting withdrawals... some people might even just need money for expenses
!PIZZA
!PIMP
$PIZZA slices delivered:
@diegoloco(1/5) tipped @davideownzall
Join us in Discord!
It's difficult to do business in this uncertainty, and I imagine many don't want to resort to banks and are looking for these options, but the problem is running out of liquidity and suffering the consequences—a very complicated situation.
If you are in need of money and can't then via bank, they are not that bad, the problem is if you are an investor...
We must always remember that investing is like planting a seed: it takes time, and the weather can change. Therefore, the most important rule is to never gamble with money you need for basic expenses or immediate emergencies. I've learned this over time and from reading the experiences of various users; you have to be cautious.
Always put what you are willing to lose! It's the golden rule
Your post makes me reflect on the fact that as investors we must be prepared for everything, and know that we take financial risks, especially in the current climate of so much uncertainty.
Those are high risk investments, better read carefully all clauses on contracts
Is investing in private credit common? But does it offer security? Does it have a legal basis? I hadn't heard of this. Are they like lenders?
i don't know how much it is common but appartenly a lot looking at the numbers coming out... of course all legal
Okay, that sounds great, thanks for a
so even lenders hit early on this war. And i guess its gonna get worst on later days.