Blackstone targets $10bn for new US direct lending fund

The fund's strategy will likely borrow, sources told Buyouts, from Blackstone Private Credit Fund – widely known as BCRED – a business development company formed in 2020 for individual investors.

Blackstone rolled out a fresh direct lending offering, as private credit strategies seize on an abundance of opportunities in a less competitive market.

The firm launched a US direct lending fund in the first quarter, president and COO Jonathan Gray said in a Q1-2023 earnings call, “targeting $10 billion for this first vintage.”

Named Blackstone Senior Direct Lending Fund, it will be marketed to both institutional and insurance clients.

Blackstone did not share details about the vehicle’s investment strategy. It will likely borrow, sources told affiliate title Buyouts, from Blackstone Private Credit Fund – widely known as BCRED – a business development company formed in 2020 for individual investors.

Under the banner of the $291 billion Blackstone Credit, BCRED provides privately originated and negotiated senior secured loans to mid-market and larger US businesses in high-growth, high-value sectors, such as software, technology and healthcare. A high proportion of target borrowers are sponsored by private equity.

BCRED’s origination team is expected to propel deal flow for Blackstone Senior Direct Lending Fund, sources said.

Blackstone is one of multiple sponsors to recently hit the market with a newly minted direct lending product. Fundraising is aimed at robust and growing LP demand for private debt at a time when the Federal Reserve is raising interest rates to tamp down on inflationary pressures.

Owing to key characteristics like floating rates, which track interest rate hikes, private credit strategies – especially direct lending – are viewed as well-positioned to perform in a turbulent environment.

The scope of LP demand is reflected in BlackRock Alternatives’ Global Private Markets Survey, released this week. More than half of institutional respondents to the survey said they plan to increase or substantially increase their allocations to private debt this year.

Private debt is also seeing more opportunities on the deal front, in part because of a pullback in activity among its traditional competitors. The latter include syndicated lenders, which as Private Debt Investor reported in its December/January issue, have since 2022 backed away from the market in response to uncertainty and volatility, leaving a major gap that private credit strategies are today looking to fill.

Another driver of opportunities is record levels of private equity dry powder. Given its strong focus on private equity-backed deals, the amount of investable capital is particularly relevant to direct lending, as sponsors will need to access debt capital over the near- to long-term.

These attractive conditions were reinforced in Blackstone’s Q1-2023 earnings call.

“Structurally over time, direct lenders have a competitive advantage because they’re in the storage business,” Gray said. “And I think they will continue to gain more share on newly originated deals where you’ve got to make a commitment for a public-to-private that lasts a long period of time.”

During the earnings call, Gray also said that “this is a golden moment” for Blackstone’s credit, real estate credit and insurance solutions teams, which accounted for 60 percent of the firm’s inflows in the first quarter.

Blackstone tallied more than $40 billion in inflows in the first quarter. Of this total, almost $17 billion was captured by Blackstone Credit, going into vehicles like BCRED and the platform’s global direct lending and green energy credit offerings.

The firm declined to comment on this story.