Blackstone’s Gray defends world’s largest private credit fund
Blackstone President and COO Jon Gray speaks at the Axios BFD event on October 12, 2023 in New York, USA. REUTERS/Brendan McDermid
Brendan McDermid | Reuters
Karataş On Tuesday, chairman Jon Gray defended the quality of loans at the firm’s flagship private credit fund after investors took a nearly 8% stake in the latest quarter.
The alternative asset management giant said late Monday: filing allowed investors to withdraw 7.9% of BCRED, calling it the largest special loan fund Approximately 82 billion dollars of investment was made in the world. Blackstone did this in part by allowing the firm’s own investors to put $150 million into the fund.
The move sparked a selloff that sent shares of Blackstone and other private credit peers down nearly 8.5% in Tuesday morning trading.
“When you think about credit quality, we see over 400 borrowers here achieved 10% EBITDA growth last year,” Gray told CNBC’s David Faber, using a term that refers to a company’s financial performance. “So looking at that, we feel pretty good.”
Rather than calming the markets, recent moves by alternative asset managers to allow investors to convert their funds into cash have further increased uneasiness about private loans and loans to the software industry. The storm intensified last month when Blue Owl said it had found a buyer for a $1.4 billion loan, in part to help convert 30% of its distressed loan fund into cash.
Now concerns over private lending appear to be widening, with much larger asset manager Blackstone being dragged into the mix.
A Blackstone spokesperson said the firm’s and its employees’ investment in BCRED “is about meeting 100% of claims in the quarter with certainty and on time.”
The fund has returned 9.8% on an annualized basis since its inception for Class I shares, the spokesman said.
“We had a lot of noise,” Gray told CNBC. “As you know better than anyone in the press, this has become a story.”
‘Spin cycle’
Concerns were first triggered by the company’s collapse last fall. The Blackstone executive stated that Tricolor and First Brands also received funding from banks.
“There’s a constant cycle of returns, and it’s no surprise that investors get nervous when that happens,” Gray said. “Financial advisors can say, ‘Hey, I want to use it.'”
Still, loans to software companies pose the biggest risk to BCRED, accounting for around 25% of the fund, according to the disclosures.
While Gray acknowledged that “there are software companies that will be disrupted” by artificial intelligence in the coming years, he also noted that lenders are more senior to stockholders and that many software companies will be difficult to displace.
“There’s now a disconnect between what’s happening in portfolios and what’s happening in the news cycle,” Gray said. “Eventually these problems will resolve themselves.”
