The Manhattan U.S. Attorney's Office has requested information, and executives have been questioned in an investigation regarding BlackRock's (NYSE:BLK) private credit fund.

Federal prosecutors are looking into TCP Capital Corp (NASDAQ:TCPC), BlackRock's publicly traded business development company (BDC) valuation practices following markdowns on certain assets, Bloomberg reported.

In January, TCPC announced an estimated 19% decline in Net Asset Value (NAV), largely tied to portfolio restructurings primarily around e-commerce stocks and the bankrupt Renovo Home Partners, Seeking Alpha reported at the time. Following the announcement, shares of the stock dropped over 14%.

Earlier this month, BlackRock slashed the value of TCPC by approximately 5%. The publicly-traded middle-market lending fund’s total markdowns were $35 million in the first quarter.

The fund has struggled recently due to increased pressure from distressed loans, asset markdowns, and declining returns. Despite the decline, the company said it executed “improving credit quality” during the quarter.

Last week, David Woodcock, director of the Division of Enforcement at the U.S. Securities and Exchange Commission, flagged private funds as an area the agency is watching closely.

“Private investment markets and efforts to broaden access to retail investors can be quite positive, but we must, and will, remain vigilant. We are attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest—not only at the private fund adviser level but throughout the distribution chain. Firms must ensure their representatives understand the products they sell and the investment profiles, risk tolerance, and liquidity needs of their clients,” Woodcock said during the MFA Legal & Compliance conference.

Sec Chair: ‘We’re Taking It Seriously’

Meanwhile, SEC chairman Paul Atkins said the agency is investigating alleged fraud in the private credit sector.

Speaking at the Milken Institute Global Conference earlier this month, Atkins did not identify which specific firms are under investigation. He noted that the SEC, U.S. Department of the Treasury and the Federal Reserve are all monitoring the private credit space.

“We are taking it seriously, we are monitoring the situation. There’s been allegations of fraud and obviously, I can’t talk about any specific cases, but we are investigating that as well,” Atkins said.

BlackRock has been rapidly expanding into the private credit space in recent months, despite recent turmoil in the market. Investors have become increasingly concerned that the software sector will become irrelevant due to advancements in artificial intelligence.

The firm announced plans to expand its private credit capabilities on Preqin, adding analytics and research tools designed to provide standardized intelligence across the private credit market.

Last year, BlackRock acquired HPS Investment Partners for approximately $12 billion, including TCPC. As a result of the acquisition, the firm created Private Financing Solutions (PFS), which combined the firms’ private credit, GP and LP solutions, and private and liquid CLO businesses into one integrated platform.

Following news of the probe into TCPC, shares are down 4.7% as of 1pm New York time. TCPC is down 49% on the year.

Photo: Image via Shutterstock/ Poetra.RH