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Blackstone’s Gray: Market ‘noise’ fueled record redemptions from world’s largest private credit fund
Jon Gray, President and COO of Blackstone, speaks during the Axios BFD event in New York City, U.S., October 12, 2023. REUTERS/Brendan McDermid
Brendan Mcdermid | Reuters
Blackstone president Jon Gray on Tuesday defended the quality of loans within the firm’s flagship private credit fund after investors pulled nearly 8% from it in the last quarter.
The alternative asset management giant said in a late Monday filing that it allowed investors to withdraw 7.9% of BCRED, which it calls the largest private credit fund in the world, with about $82 billion invested. Blackstone did so in part by allowing the firm’s own investors to plow $150 million into the fund.
The move sparked a sell-off in Blackstone shares, which fell as much as about 8.5% in morning trading Tuesday, as well as in other private credit peers.
“When you think about credit quality, the 400-plus borrowers here, they had 10% EBITDA growth last year,” Gray told CNBC’s David Faber, using a term referring to a company’s financial performance. “So when we look at this, we feel pretty darn good.”
Instead of calming markets, recent moves by alternative asset managers to allow investors to cash out of funds have only added to jitters around private credit and loans to the software industry. Last month, the storm intensified when Blue Owl said it found buyers for $1.4 billion of its loans, in part to help cash out 30% of an embattled credit fund.
Now, with the far larger asset manager Blackstone being swept up in it, concerns around private credit seem to be broadening.
A Blackstone spokesman said the firm and its employees’ investment in BCRED was “about meeting 100% of requests for the quarter with certainty and timeliness.”
The fund delivered 9.8% annualized returns since inception for Class I shares, the spokesman said.
“We’ve had a ton of noise,” Gray told CNBC. “As you guys know better than anybody in the press, this has become a story.”
‘Spin cycle’
Concerns were first triggered last fall with the collapse of Tricolor and First Brands, firms that also received funding from banks, the Blackstone executive noted.
“There’s a constant spin cycle, and so when that’s happening, it’s not a surprise that investors can get nervous,” Gray said. “Financial advisors can say, ‘Hey, I want to redeem.'”
Still, loans to software firms make up the single biggest exposure for BCRED, at roughly 25% of the fund, per disclosures.
While Gray acknowledged that “there are software companies that will be disrupted” by AI in the coming years, he also noted that debt lenders are senior to equity holders and that many software companies will be difficult to dislodge.
“There’s this disjointed environment now between what’s happening on the ground with underlying portfolios and what’s happening in the news cycle,” Gray said. “Ultimately, these things will resolve themselves.”
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At around 8.25 am, the benchmark US oil contract, West Texas Intermediate (WTI) climbed 4.06% to US$96.73 per barrel.
International oil benchmark Brent North Sea crude rose 3.62% to US$105.63. Both eased back in the following minutes.
Oil prices have soared since Israel and the US attacked Iran on Feb 28, and they have kept inching up due to the uncertainty over whether war will resume.
As the clock ticked for a return to the war that has engulfed the region, US President Donald Trump had said Tuesday he would maintain the truce to allow more time for Pakistani-brokered peace talks.
Iran said it welcomed the efforts by Pakistan but made no other comment on Trump’s announcement.
Wall Street stocks gained ground following President Trump’s unilateral ceasefire extension in the Iran war.
All three major US stock indexes advanced, with tech shares helping to put the Nasdaq out front, while gold advanced and the dollar edged higher.
The S&P 500 and the Nasdaq reached record closing highs.
“Despite the energy shock and headlines that have inundated investors, the macroeconomy, corporate fundamentals, and consumer spending remain strong,” said Bill Merz, head of capital markets research at US Bank Wealth Management in Minneapolis.
“Investors are taking the stance that the Strait of Hormuz will open before too much damage is inflicted on the global economy.”
Iran’s Revolutionary Guards seized two vessels for maritime violations just hours after Trump agreed to extend the ceasefire until negotiations are concluded.
About a fifth of the world’s oil and liquefied natural gas (LNG) supplies normally pass through the strait.
US stocks, initially battered by the war, have since made a full recovery, with the S&P 500 and the Nasdaq having reached all-time closing highs in recent sessions.
But geopolitical uncertainty lingers, and a prolonged period of elevated oil prices remains a threat.
About two-thirds of the S&P 500 companies that have reported quarterly earnings since the beginning of April have voiced concerns about energy prices in their analyst conference calls, according to a Reuters review of transcripts.
“Anytime there’s a global event like the conflict in the Middle East, and it grabs so many headlines and captures attention, it will crop up in earnings commentary,” Merz added. “But we’re not seeing it significantly impact behaviour yet.”
First-quarter earnings season is well underway amid lofty expectations. Analysts currently estimate year-on-year S&P 500 earnings growth of 14.4% for the January-March period, according to the most recent LSEG data.
The Dow Jones Industrial Average rose 341.27 points, or 0.69%, to 49,490.52, the S&P 500 +gained 73.90 points, or 1.05%, to 7,137.91, and the Nasdaq Composite was up 397.60 points, or 1.64%, to 24,657.57.
European shares ended lower for the third straight session as the Middle East strife continued to weigh on markets and investors assessed a raft of corporate earnings.
Dozens of international firms have withdrawn guidance or signalled price hikes since the war began.
MSCI’s gauge of stocks across the globe rose 4.52 points, or 0.42%, to 1,070.98.
The pan-European STOXX 600 index fell 0.35%, while Europe’s broad FTSEurofirst 300 index fell 8.58 points, or 0.35%.
Emerging market stocks fell 9.41 points, or 0.58%, to 1,606.07. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 0.6%, to 822.27, while Japan’s Nikkei .N225 rose 236.69 points, or 0.40%, to 59,585.86.
The dollar rose amid lingering geopolitical worries.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.26% to 98.63, with the euro down 0.32% at $1.1704.
Against the Japanese yen, the dollar strengthened 0.12% to 159.56.
In cryptocurrencies, Bitcoin gained 4.13% to $78,866.74. Ethereum rose 3.48% to $2,398.37.
US Treasury yields increased, rangebound amid choppy trading.
The yield on benchmark US 10-year notes rose 1.2 basis points to 4.304%, from 4.292% late on Tuesday.
The 30-year bond yield rose 1.1 basis points to 4.9091% from 4.898% late on Tuesday.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2.1 basis points to 3.8%, from 3.779% late on Tuesday.
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