Street View: Allowing excess withdrawals from credit funds could redefine permanent capital

Blackstone's BX.N flagship private credit fund BCRED revealed late Monday it was hit by surge in ​clients withdrawing their money in first quarter, with redemption requests crossing the allotted 5% level

BX shares slide 8.5% in early trading

REDEFINING PERMANENT CAPITAL

J.P. Morgan says BCRED facing redemption requests above 5% limit is a significant expression of souring investor sentiment on direct lending

Adds that allowing excess withdrawals from a fund with liquidity guidelines potentially creates other issues down the road and also bigger earnings impact near term

Evercore says $82 billion BCRED has effectively raised the bar for all the other non-traded business development companies by fulfilling 100% of requests this quarter

Adds that certain private credit funds’ willingness to provide liquidity above the typical 5% limit could call into question the "durability of evergreen capital, lead to moral hazard, and ultimately be a long-term mistake for the industry"

Barclays says credit performance has generally been solid across business development companies but it had anticipated flows to worsen in Q1, including both softer gross sales and heightened redemptions