LONDON, May 15 (Reuters) - Private credit funds have begun marking down their loan books in a recognition of investor concerns over credit quality and broader market sentiment around artificial intelligence disruptions.
A Reuters review of filings from 14 major business development companies (BDCs), that lend in private markets mainly to small businesses, found broad first-quarter markdowns in private credit portfolios.
The aggregate fair-value-to-cost ratio fell 103 basis points to 98.55% at end-March,
leaving investments marked around $1.2 billion below amortized cost. Managers attributed some pressure to market-wide spread widening rather than solely borrower deterioration, but the figures underscore investor concerns about AI disruption to software borrowers, non-accruals and redemption pressure.
Significant declines in fair values of loans were at CION, Ares, Blackstone Secured Lending and Goldman Sachs BDC, the study found.
Separately, MSCI data showed more than a tenth of private-credit loans have been marked down by at least 50%, a level MSCI says is typically associated with deep distress or restructuring risk.
It said the stress is concentrated in smaller private-debt funds, where 13% of loans were valued below 50 cents on the dollar.
In a sign of continuing funding pressures at BDCs, Blue Owl saw a 95% drop in new investments at its biggest credit fund for retail investors, with the Blue Owl Credit Income Fund accepting just $26.4 million in subscription payments on May 1, compared with $480 million at the same time last year.
HSBC said on Friday it remains committed to its private credit investments, after an earlier Financial Times report that said the lender had paused a $4 billion plan to invest in its own private credit funds. This comes in the wake of HSBC disclosing a $400 million loss from the collapse of UK lender Market Financial Solutions, a bridging lender that foundered when it was discovered it had pledged assets as collateral for multiple lenders simultaneously.
Goldman Sachs' private credit fund experienced a 3.7% decline in value during the first quarter owing to an increase in unrealized losses, while private markets giant KKR said it plans to inject $300 million into FS KKR Capital as losses and credit problems mount at the private-credit fund.
The Financial Times reported on Wednesday Britain's Financial Conduct Authority has discussed overhauling reporting requirements with major private-credit groups, a sign of how regulators are striving to improve transparency around private credit.
The talks involved firms such as Apollo, Blackstone, Carlyle, Goldman Sachs Asset Management and KKR, some of which have already agreed voluntarily to provide data to the Bank of England for a stress test of the global private equity and private credit industries.
(Compiled by Vidya Ranganathan; Editing by Andrew Heavens)
