BlackRock says the private credit ‘shakeout’ is an opportunity for the $13.9 trillion fund giant to dominate

Less than a year after BlackRock’s $12 billion acquisition of private credit powerhouse HPS Investment Partners, one of Wall Street’s hottest asset classes is now showing signs of strain.

But the world’s largest asset manager sounds calm about current concerns.

“There’s been a lot of attention on private credit, but the headlines do not reflect what clients are telling us, what our portfolio data shows, or where we see the market going,” BlackRock CEO Larry Fink told analysts on its first-quarter earnings call.

This comes after a wave of redemption requests at private credit vehicles aimed at retail investors, like non-traded business development companies. Investors, spooked about exposure to software companies in the age of AI and the valuation of loans, have asked for billions in cash back this quarter.

Fink said that demand growth is “structural,” driven by a need for more capital to meet investment needs, and wealth vehicles make up only 25% of the market. Institutional demand is still growing and now accounts for 85% of investor cash in private credit, he said.

The firm saw $9 billion in private markets inflows in the first quarter, including a “multibillion-dollar” deal with an insurance client.

Some retail-focused funds saw investors hitting limits on how much cash they could withdraw in the quarter, including BlackRock’s own HPS Corporate Lending Fund, where investors looking to redeem 9.3% of their shares were told that only 5% of the fund’s value would be returned.

Fink and his fellow executives were hopeful about the future of private credit at BlackRock, but that doesn’t mean every firm that rushed into the category will be a winner. Fink said that the “relatively benign” credit markets of the last 5 to 7 years may “have lifted all boats,” but the situation is changing.

“We expect to see much more dispersion in performance among private credit managers,” Fink said. “That’s an environment we like to compete in.”

One-stop shop

BlackRock’s position as a one-stop shop for investment, with a range of financial products totaling $13.9 trillion in assets under management, means that “private credit tumult” can actually be an opportunity, said CFO Martin Small.

“Clients are saying we want a more whole portfolio relationship so that we can think about how to put our public markets together with our private markets, how we can manage our practices through these market cycles,” Small said.

In other words, what Small sees as a “shake-out in credit” could actually help funnel investors to BlackRock, and help grow beyond its core businesses, like its iShares ETFs. As investors look to reduce the number of investors they work with, and dig into a “whole portfolio” style of investing, BlackRock provides a wide-range of options.

Key to the firm’s strategy of being a one-stop shop is its Aladdin portfolio management tech platform, which has over 130,000 users ranging from other asset managers to wealth management firms. The fact that Aladdin can provide a “public-private workflow and data offering,” while risk-management across the private credit industry has “not kept pace” with growth, means there’s a “meaningful opportunity for Aladdin,” said Fink.

Future opportunities

Chaos, like the concern over defaults ticking up and private-credit redemptions rapidly increasing, can also mean opportunity.

“Periods of market dislocation are when private credit investment opportunities are most compelling,” Fink said, noting that lenders are getting paid more to take risk now than they were a few months ago. He said loans are being quoted 25 to 50 basis points higher than they were at the end of last year, with “select opportunities” up 100 basis points.

And for a firm that’s had a lot of its success serving the retirement market, recent proposed rules that could make it easier to put private assets into a 401(k) were even “better than we expected,” said Small.

The firm plans to launch a version of its Lifepath target-date fund with private assets this year, said Small. These early steps for private markets into the $12 trillion defined-contribution market could present another massive growth opportunity, proving to 401(k) sponsors that the time is right for private assets.

The goal is to build a track record that gives plan sponsors and consultants more confidence in private-market investments, especially as new Labor Department rules take effect later this year, Small said.

“We get really running in 2027,” Small said.