Blackrock’s private credit fund is limiting withdrawals to 5% of holdings. About which the Elyan Solanum tells us:
If BlackRock is suffering cash flow constraints, there are signs of:
Market panic
A flight to safety
Stress on credit lines for one of the biggest financial institutions in the world.
If any of these are true, markets are melting down much faster than I expected.This is serious. Monday morning is going to be scary. Hold your breath.
Aaaaand, no.
We know what a bank run is. It’s when people demand their deposits back. The problem with a bank run is that banks borrow short and lend long. So, the deposits can be called at sight. But the loans they finance cannot be – so, the bank goes bust (note that this can happen proves Spud wrong on banking, but…..)
So, we then have a standard observation in the market. If you’re a fund – which is not banking, note – then you need to be careful about redemption. You can have a closed end fund – when someone asks for their money back they don’t get it. They, instead, sell their shares to someone else. They get the market price and that’s that. You can have an open ended fund. In that, someone asks for their money back then the fund liquidates (they’ll have a cash margin, obvs, but imagine that is exceeded) a bit and pays them out.
OK. So when should you use which model? If the fund is investing in something liquid then you can be open ended. Like ETFs are. You can sell Shell, or BP, just as much as anyone tries to sell shares in a oil majors ETF can sell their shares. You’ve no liquidity imbalance. But if you’re investing in something illiquid then you don’t want to do that – you should be closed ended. And, yes, there are examples of people using an open ended fund when they should have been closed – several commercial property funds come to mind – who then go bust because of the liquidity mismatch. To a great extent this is what went wrong with Neil Woodford. People wanted out of an open ended fund, he sold the liquid stocks to pay them, more wanted out and he was only left with the illiquids and private investments and having to sell those in a hurry means he got raped on the price.
This is all well known and understood. So, the Blackrock private credit fund says you can have 5% of your money back at any one time. Because we’re investing it in sorta illiquidy private credit. That’s the deal at the start.
From which Spud declares that the economy is about to fall apart.
If there anything that he actually knows about?
A while back I did grin at someone referring to Vanrock and Blackguard.
I am a bit surprised any private credit fund is open-ended, even with liquidity restrictions. Although I think this is mainly a fund for retail investors, which explains it a bit. Bloomberg (IIRC) mentioned that some investors were worried about the fund lending to businesses which might be hit by AI, which is bizarre. I’d be more worried about AI firms trading at a zillion times earnings and cross-investing in each other. If Blackrock’s underwriting is even vaguely sane the downside should be limited.
Anyway, what I really came to say is that the lines quoted above are excellent proof as to why Spud should be totally disregarded. His misunderstanding is epic. He is even thicker than I thought he could be.
There do appear to be some seismic shifts going on in private equity though, being carefully hidden in all the chaos of Trump’s Middle East adventures. I noticed that Oracle and OpenAI chose yesterday to let it be known that they are downscaling the planned size of their massive Texas datacentre by 40%. There’s going to be a lot of squeaky bums among the private equity bros who have hundreds of billions at risk in the AI sphere. It looks like that bubble could be about to start deflating. Higher energy prices won’t be helping either.
Well done talking up the panic there Ritchie. My advice to Mrs Ltw on fuel availability (more panic buying here, apparently no one learned anything from the Covid toilet paper debacle) was pretty much do we have a full tank? Yep, great, give it a week or two to settle down.
Q. Why is Richard Murphy so stupid?
AI Overview
The perception of Richard Murphy as “stupid” or, conversely, highly insightful, is deeply polarized and depends heavily on whether one agrees with his radical economic views, particularly regarding Modern Monetary Theory (MMT), tax policy, and public spending.
Ultimately, whether Murphy is considered “stupid” depends on whether his unconventional approaches to tax and economics are viewed as reckless or as necessary, progressive reforms.
Great demonstration of the limitations of AI.
As clear an indication as you might wish that AI isn’t I…….
Man with no investments pontificates on investments. Apart from resetting the “days since last crash predicted” sign it seems eminently ignorable.
Unfortunately its not just him being tarded.
Noticed Austin Fitts on X trying the same panican shtick and a lot more people seem to listen to her – not sure why.
Was Blackrock (or this fund, at least) always limited redemption? From what little I read of it, I got the impression that it was an open-ended fund that had unilaterally imposed restrictions on redemption.
That indicates either stress on the fund or poor maanagement. Possibly both, of course. Not that I would hate to see Blackrock fail spectacularly, along with the ESG bullshit they promoted.
As I understand it – AIUI – it was always limited redemption. But they allowed, in times of no stress, people to breach theur specific limits. You know, to be nice. Now they’re insisting on contract clauses.
OK – thanks Timmy!