Blackstone Inc. is testing a new way to bring in cash from rich Europeans. If it succeeds, the private equity powerhouse stands to draw billions to the fast-growing and risky world of private credit.
Regulators approved Blackstone’s application to start a private credit fund in Europe with a structure similar to an open-end mutual fund. The key difference is that it can run in perpetuity, unlike traditional private credit funds that have a fixed lifespan. For Blackstone, it means cash can be recycled into new investments as loans are repaid, promising a steady stream of fees for managers.
“The time is ripe for private individuals to access this market,” said Daniel Roddick, founder of Ely Place Partners, which advises alternative fund managers. “There’s a lot of demand for credit.”
Blackstone’s fund will be the first of its kind in Europe, where direct lending has exploded into a $300 billion industry in the span of a few years, and a shift in how the funds are traditionally structured. Usually, non-bank lenders run closed-end funds over a set number of years, and fees are only paid on invested capital.
From the standpoint of a portfolio manager, it’s a labor intensive and inefficient system. In essence, their earnings get curtailed as a fund ramps up and winds down.
With the new fund, which will be regulated as a SICAV — a type of investment firm common in Europe — and based in Luxembourg, Blackstone is seeking to replicate its success at targeting high net-worth clients in the US. The Blackstone Private Credit fund was opened up to American investors in 2021 and has ballooned to $37.8 billion.
In Asia, Blackstone is also accelerating growth. The alternative asset manager aims to increase its Asia-Pacific private credit business to at least $5 billion in the “near term,” from the $500 million committed as of the fourth quarter.
By selling riskier private credit products to individuals, instead of institutions, Blackstone may attract more scrutiny from regulators. The Bank for International Settlements, the central bank of central banks, recently warned that non-banks may need to be regulated in the future.
“The liquidity aspect — how quickly can an investor have capital returned — is key,” said Roddick. “Regulators tend to be reactive to markets and therefore regulations often lag behind new developments. It will be interesting to see how they respond to the recent enormous growth in the democratization of private markets.”
Elsewhere in credit markets:
EMEA
There are nine issuers in Europe’s primary market marketing at least 4.4 billion euros ($4.7 billion), including SEB Corp. with a sale of Additional Tier 1 notes, the riskiest type of bank debt. Deutsche Bank AG and its asset management unit had their Frankfurt offices raided by police, adding to the legal headaches facing Germany’s largest lender.
Pimco’s largest fund increased its exposure to Russian credit-default swaps in the run-up to the country’s invasion of Ukraine by selling more than $100m of protection. CDS panel will rule on potential event of default on Russia.
Asia
At least four Japanese issuers have canceled or reduced yen note sales this month as borrowing costs rise. Until now Japanese corporate bonds hadn’t suffered as much in the global rout, but premiums on the debt have jumped in the past few days to a 14-month high. In contrast, Asian investment-grade dollar bond spreads tightened to the lowest in almost three weeks, Bloomberg indexes show. Goldin Financial Holdings Ltd. said the sale of its eponymous Hong Kong skyscraper failed to complete in a blow to the embattled property firm’s attempts to repay debt.
Americas
Treasury yields surged across the curve following European bond selloff and hawkish comments from Fed’s Christopher Waller.
