NEW YORK: Federal prosecutors are scrutinising valuation practices at a BlackRock Inc private credit fund, according to sources.
The Manhattan US Attorney’s office in recent months has been seeking information about BlackRock TCP Capital Corp (TCPC), a publicly traded business development company (BDC), said the sources.
Executives have been questioned as part of the probe, one of the source said.
A representative for BlackRock declined to comment.
A spokesperson for the Southern District of New York (SDNY) 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 US$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. — Bloomberg
