Blackstone has pushed back against “exaggerated claims and misleading comparisons” currently blighting the private credit sector, arguing that current market conditions are “nothing like 2008”.
Since last year, private credit has been battling a series of negative headlines, mainly due to concerns around software exposure amidst the AI boom and worries about corporate credit quality after several high-profile bankruptcies. Some business development companies (BDCs) in the US have now ‘gated’ their funds after a spike in outflows from nervous retail investors.
The world’s largest alternatives manager has pushed back against some of the criticism, suggesting that while it is natural for a growing asset class to face scrutiny, there have been “exaggerated claims and misleading comparisons”.
In a recent note, Blackstone set out to distinguish between “myth vs fact”, starting with the claim that private credit will create the next global financial crisis, stating plainly that “today’s markets look nothing like 2008”.
Blackstone said that, at the time of the financial crisis, banks were 25 to 40 times levered, primarily funded by short-term deposits and commercial paper, and heavily exposed to subprime housing.
“This is nothing like what is happening today,” Blackstone said. “BDCs typically operate with less than 1x leverage, and lend at roughly 40 per cent loan-to-value to corporate borrowers.”
Secondly, the manager addressed claims that credit quality is collapsing, arguing that credit metrics are in fact resilient.
Using the Blackstone Private Credit Fund as an example, it said its companies grew earnings by 10 per cent on average last year, while the cushion between what they earn and the interest they owe on their loans grew by 25 per cent.
On losses, the manager also pointed out that private credit loans typically sit at the top of the capital structure, with around a 60 per cent equity cushion, which limits losses.
Read more: Private credit weathers scrutiny as managers reject crisis narrative
Additionally, Blackstone fought back against predictions of a looming “SaaSpocalypse” for private credit. The firm argued that credits are generally well protected as “not all software is equal”, with some technologies less easily replaced by AI.
Finally, Blackstone addressed the criticism of private credit being offered to retail investors, suggesting that BDCs remain appropriate for individual investors and are functioning as intended.
The firm said the liquidity trade-off of these funds is “disclosed from day one”, pointing to the structure’s resilience during market stress, including the previous performance of the Blackstone Real Estate Income Trust.
“The semi-liquid structure is a feature, not a bug,” Blackstone said.
