John Gray, President and COO of Blackstone, speaks at the Axios BFD event in New York City, USA, on October 12, 2023. Reuters/Brendan McDiarmid
Brendan McDiarmid | Reuters
Blackstone President John Gray on Tuesday defended the quality of loans within the company’s flagship private credit fund after investors withdrew nearly 8% from the fund last quarter.
The alternative asset management giant said in a filing late Monday that it has allowed investors to withdraw 7.9% of BCRED, which it calls the world’s largest private credit fund with about $82 billion invested. Blackstone did this in part by allowing its own investors to put $150 million into the fund.
The move triggered a decline in Blackstone shares, with shares of Blackstone and other private credit stocks down as much as about 8.5% in Tuesday morning trading.
“Given the credit quality of the 400-plus borrowers here, EBITDA growth was 10% last year,” Gray told CNBC’s David Faber, using the term to refer to a company’s financial performance. “So when I see this, it makes me feel really good.”
Rather than calming the market, recent moves by alternative asset managers to allow investors to convert their money into cash will only increase worries about private credit and financing for the software industry. The storm intensified last month when Blue Owl announced it had found a buyer for a $1.4 billion loan to liquidate 30% of its troubled credit fund.
Now that Blackstone, a much larger asset manager, has been caught up in the fallout, concerns over private credit appear to be further amplified.
A Blackstone spokesperson said the company and its employees’ investment in BCRED was aimed at “100% reliably and timely meeting the requirements of this quarter.”
The fund has achieved an annualized return of 9.8% since its inception on Class I shares, according to a fund spokesperson.
“We had a lot of noise,” Gray told CNBC. “As you know better than anyone in the media, this is a hot topic.”
“Spin Cycle”
Blackstone executives said concerns first arose last fall with the bank-financed bankruptcies of Tricolor and First Brand.
“Spin cycles are a constant, and it’s not surprising that investors get nervous when they occur,” Gray said. “A financial advisor can say, ‘I want to redeem.’
Still, loans to software companies represent BCRED’s largest exposure, accounting for about 25% of the fund, according to disclosures.
While Gray acknowledged that “there are software companies that will be disrupted” by AI over the next few years, he also noted that creditors rank above equity holders, making it difficult to eliminate many software companies.
“Right now, there’s a disparate environment between what’s happening on the ground in the underlying portfolio and what’s happening in the news cycle,” Gray said. “Eventually, these things will take care of themselves.”
