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/