BlackRock private credit fund’s valuations are probed by DOJ

The Manhattan US Attorney’s office in recent months has been seeking information about BlackRock TCP Capital Corp., a publicly traded business development company, said the people, who asked not to be identified discussing a private matter. Executives have been questioned as part of the probe, one of the people said.

A representative for BlackRock declined to comment. A spokesperson for the Southern District of New York didn’t respond to a request for comment.

Jay Clayton, who runs the SDNY, said in November he was concerned about how firms value private assets — and that “people should know that the financial regulators and the department are looking at those.”

This week, while downplaying concerns about an imminent financial crisis from private credit, Clayton reiterated at a Managed Funds Association conference that “if people are mismarking in order to generate fees, that’s always been a no-no.”

It’s not immediately clear whether the probe of the BlackRock fund, which trades under the ticker TCPC, is part of a broader SDNY inquiry. Probes can end without charges being filed.

TCPC filed a rare off-cycle disclosure in January that said it expected to slash the value of its assets by 19%. That sent shares of the fund plunging 13% on Jan. 26, the most since March 2020. A number of class-action lawsuits have since been filed on behalf of investors that claim it made “materially false” statements and that it didn’t properly value its loans.

The portfolio markdown was among the starkest examples of how quickly valuations can change in the $1.8 trillion private credit market.

Investors in BDCs rely on the values ascribed to the loans, since there is no active market where the assets trade. Marks are therefore a key factor in determining at what price investors can enter or exit the fund, and they also impact the fees managers collect from the vehicles. 

Funds like BlackRock’s TCPC typically only report quarterly. That’s what made the January disclosure, stating a preliminary net asset value per share of between $7.05 and $7.09, so unusual. 

About a month later it officially calculated the fourth-quarter figure at $7.07, sharply down from $8.71 at the end of the prior period.

The fund’s shares have dropped 24% this year amid a broader decline in the private credit industry, fueled by concern over lending standards and increased stress among borrowers.

BlackRock acquired TCP from Tennenbaum Capital Partners in 2018. Since its acquisition of HPS Investment Partners last year, HPS executives have come in to help manage the embattled vehicle, taking three spots on the fund’s seven-member investment committee.