BlackRock caps redemptions from $26 billion private credit fund after investor withdrawals spike

BlackRock has restricted investor withdrawals from its $26 billion HPS Corporate Lending Fund (HLEND) after redemption requests surged beyond the usual threshold, underscoring mounting pressure in the $2 trillion global private credit market, Reuters reported.

The move came after investors sought to withdraw $1.2 billion in the first quarter, equivalent to roughly 9.3% of the fund’s net asset value. The fund said it would distribute $620 million in the quarterly redemption cycle, reaching the 5% limit, which allows managers of such vehicles to restrict further withdrawals.

The development comes as investors grow increasingly cautious about private credit funds that invest in loans to companies that cannot be quickly sold if redemption requests spike.

"It should serve as a warning sign for the industry and the rulemakers about the downside of illiquid funds for retail investors," said Greggory Warren, senior stock analyst at Morningstar.

Market pressure has also hit BlackRock’s stock. Shares of the world’s largest asset manager fell 6.7% on the New York Stock Exchange, amid a broader selloff triggered by weaker-than-expected US jobs data and escalating US-Israeli conflict with Iran.

Rising pressure across private credit funds

HLEND, structured as a business development company (BDC), was acquired by BlackRock along with its manager HPS Investment Partners in a $12 billion expansion into private credit in 2024. BDCs primarily raise money from retail investors and lend it to mid-sized companies.

Because these loans are typically illiquid, large redemption requests can create liquidity challenges.

HLEND said the redemption cap helps prevent “a structural mismatch between investor capital and the expected duration of the private credit loans in which HLEND invests.”

"By preventing redemptions through gates, fund managers can avoid being forced sellers of assets, which would negatively impact investment returns for the remaining fund investors, given the opacity and illiquidity of the holdings in these funds," Warren said.

Investor pressure is being seen across the sector. Earlier this week, Blackstone raised the redemption limit on one of its $82 billion funds to 7% from the usual 5%, while the firm and its employees injected $400 million to meet withdrawal requests. Blue Owl also repurchased 15.4% of one of its funds in January.

Loan defaults and sector exposure concerns

Concerns about lending quality have also risen after bankruptcies of a US auto parts supplier and a subprime auto lender last year, along with the collapse of a UK mortgage lender last week.

HLEND said its lending portfolio focuses mainly on mature private companies with stable cash flows, with loan structures designed to ensure repayment priority in the event of bankruptcy.

Company documents show that about 19% of the fund’s portfolio is exposed to the software sector, which has faced aggressive selling as investors worry about disruption from AI-driven startups.

Subscriptions to the fund reached $840 million in the first quarter, below the $1.2 billion investors requested to withdraw.

Amid heightened volatility linked to Middle East tensions, potential economic slowdown, and rising loan defaults, investors have increasingly shifted toward safer assets.

HPS said in a statement that it sees an opportunity to lean into the current volatility, according to Reuters.