Blackstone Private Credit is trying to not let a burgeoning crisis go to waste, according to its recent tender offer filing and a discussion with Morningstar manager research analysts.
Circumventing a Technicality
Blackstone Private Credit, the business-development company known as BCRED, faced $1.7 billion of net withdrawals in its latest fiscal quarter, the largest since its early 2021 inception, alongside gross withdrawals exceeding the 7% quarterly maximum it can legally meet without changing its tender offer. Although BCRED’s board may alter that percentage between tender-offer windows, the inability to change it during this offer was the problem, not a lack of liquidity.
In response, Blackstone came up with a novel solution. Rather than prorating redemptions—thereby returning less money to investors than they requested—and thus adding to worries about semiliquid fund investors’ ability to get all their money back, Blackstone employees and the firm injected $400 million into a BCRED feeder fund for non-US investors that funnels their investments to the BDC itself. Blackstone sized that infusion to match this vehicle’s outflows such that it lowered the BDC’s net redemption requests to 7%, enabling BCRED to completely fill its orders.
Semiliquid Fund Liquidity in Theory and Practice
BCRED would have been within its rights to limit withdrawals to 7% or even the fund’s typical 5% quarterly cap. After all, the premise of semiliquid vehicles, including BDCs and interval funds, is that limiting investor withdrawals enables managers to buy illiquid private assets with yield spreads meaningfully above what’s available in the public markets, and often employ some financial leverage when doing so, precisely because they don’t have to worry about forced selling to meet redemption requests. With a 9.8% annualized total return over its roughly five-year history, it’s hard to argue that BCRED investors, who have consented to withdrawal limitations, have been ill served thus far.
Imposing withdrawal limitations in practice can be tricky, though. The firm learned that the hard way with Blackstone Real Estate Income Trust, its nontraded equity REIT known as BREIT. It gained about 7.90% annually net of fees between 2022 and 2023, against the Morningstar US Real Estate Index’s 8.79% loss, as higher interest rates hurt property values. But limiting investor withdrawals from this vehicle beginning in November 2022 led to a spate of bad press and more withdrawals in December. Blackstone sought to quell worries by announcing a $4 billion deal with the University of California’s investment wing in January 2023, but only this past month did BREIT’s inflows exceed its outflows since that real estate selloff started, even as BREIT continued to meaningfully outperform the broader publicly traded REIT market.
The Strengths and Weaknesses of Blackstone’s Solution
To be sure, Blackstone’s use of employee and firm capital to avoid gating BCRED has its own challenges. Although the tactic could be used again, it is hardly a permanent solution to the problem of excess redemptions, which Blackstone recognizes. It also risks giving investors the impression they’ll do so again, possibly facilitating elevated redemption requests on the mistaken assumption they will always be met. Or investors could wrongly infer that BCRED needed that money to meet its $1.7 billion of net withdrawals. Blackstone tried to forestall that interpretation in its filing by noting the portfolio’s $8 billion of available liquidity at year-end 2025, though it’s not clear the extent to which that liquidity represented cash versus untapped debt facilities.
Blackstone, however, is right to stress the greater alignment with investors fostered by using employee and firm capital. Judging from its mid-2025 proxy statement, before this injection, BCRED trustees and executive officers alone already had $4.6 million in the BDC, nearly half of which came from one of its named managers.
BCRED investor experience also contrasts with that of Blue Owl Capital Corporation II’s investors. Following a failed merger of this unlisted BDC with a listed Blue Owl BDC counterpart, Blue Owl on Feb. 18 walked back its prior claim of resuming quarterly redemptions at net asset value for the first time since September 2025, and instead effectively changed it into a drawdown vehicle. As Morningstar principal Brian Moriarity observed, this Blue Owl BDC is now returning capital whether shareholders want it or not, and at a time not of their choosing.
Signs of Stress in Private Credit
Blue Owl’s missteps and Blackstone’s extraordinary efforts to meet redemptions come amid broader private credit stress signals, especially within software. Through March 3, 2026, this segment of the Morningstar LSTA US Leveraged Loan Index, a public proxy for private credit, lost 7.9% since its Jan. 7 peak. Although the overall leveraged loan index was only down 1.9% since its high, further losses in private credit could be coming. Morningstar DBRS found that ratings downgrades within private credit outnumbered upgrades by 3.3 times in the first six weeks of 2026, and its outlook for the year is negative, given borrowers’ ongoing struggles with margin compression and rising debt levels.
Broader Public Leveraged Loan Market Versus Software Loans
Even if losses do not accelerate, that ongoing fear could itself be a stiff test. The present moment comes amid alternative asset managers’ concerted efforts to make inroads with retail investors, a fickle lot compared with their usual institutional clientele. Whatever their type, investors in semiliquid funds from firms with lesser resources and ingenuity are more likely to suffer the disappointment of not getting all their money when requested. Or worse, persistent redemptions could eventuate the forced selling and accompanying capital destruction these vehicles are designed to prevent.
Current or potential semiliquid investors should carefully weigh these risks.
