"Federal prosecutors are scrutinizing valuation practices at a BlackRock Inc. private credit fund, according to people with knowledge of the matter. 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."
"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.""
"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."
"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 The portfolio markdown was among the starkest examples of how quickly valuations can change in the $1.8 trillion private credit market."
Federal prosecutors in Manhattan are scrutinizing valuation practices at BlackRock’s private credit fund, focusing on how private assets are valued. The U.S. Attorney’s office has sought information about BlackRock TCP Capital Corp., and executives have been questioned. BlackRock declined to comment, and the Southern District of New York did not respond. Jay Clayton previously warned that regulators and the department are looking at private asset valuation, and reiterated that mismarking to generate fees is not acceptable. The probe’s scope is unclear, and it may not lead to charges. TCPC disclosed an expected 19% asset value reduction, shares fell sharply, and investors filed class-action lawsuits alleging materially false statements and improper loan valuation. The episode reflects how quickly valuations can change in private credit, where loan marks drive investor entry and exit because there is no active market for the assets.
#private-credit #asset-valuation #federal-prosecution #business-development-companies-bdcs #blackrock
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