Writes through, adds context on UK stress, comment on credit industry from RA Stanger

By Isla Binnie

NEW YORK, March 3 (Reuters) - Blackstone's BX.N flagship private credit fund was hit by a surge in clients withdrawing their money in the first quarter, amid wider investor jitters about the fast-growing private credit sector and troubles at rival Blue Owl Capital.

The New York-based private investments giant allowed clients to pull a bigger than usual amount, $3.7 billion, from its $82 billion main credit fund, known as BCRED, during the January-March period, according to a filing on Monday. The fund also saw $2 billion of new commitments, leaving it with net withdrawals of $1.7 billion.

The requests totaled 7.9% of the fund in the quarter, leading Blackstone to "upsize" its 5% usual limit on redemptions to 7%, the firm said. Blackstone and its employees also invested $400 million into the fund to allow all redemption requests to be met, it added.

The $2 trillion private credit industry, which has expanded rapidly over the past decade, has been hit by questions in recent months about valuation and transparency, as well as concerns about credit lender Blue Owl replacing client redemptions with promised payouts and the exposures of some players last year to the bankruptcies of a U.S. auto parts supplier and a U.S. subprime auto lender.

Wall Street lenders were also rocked on Friday by the implosion of little-known UK mortgage lender Market Financial Solutions Ltd, fuelling concerns about wider losses among banks and reviving warnings of more "cockroaches" in the booming private credit industry.

PRESSURE BUILDS ON RETAIL-FACING CREDIT FUNDS

Funds like BCRED, which are open to wealthy individual investors, have come under particular strain in recent weeks. BCRED, and the fund Blue Owl is struggling to manage, are business development companies (BDCs) which raise money, often from retail investors, and lend to mid-sized companies.

Investment bank RA Stanger, which closely tracks so-called alternative assets, including private equity and private credit, said in a report last week that it "believes alternatives are beginning to enter a hairpin turn, with capital shifting away from private credit. We are now forecasting an approximately 40% year-over-year decline in BDC capital formation for 2026."

Blackstone said its approach was driven by the structure of the fund, "not by any constraints on BCRED's liquidity".