The judiciary steps in as the U.S. investigates a BlackRock private credit fund whose valuation suddenly plunged 19% in January.

The judiciary steps in as the U.S. investigates a BlackRock private credit fund whose valuation suddenly plunged 19% in January.

Judicial authorities intervene: U.S. investigates BlackRock’s private credit fund as its valuation suddenly plunged 19% in January

U.S. federal prosecutors have launched an investigation into a private credit fund managed by BlackRock, pushing the long-standing issue of opaque valuations in the private credit market into the realm of judicial scrutiny.

According to media reports citing sources, the Manhattan federal prosecutor’s office (Southern District of New York, hereafter SDNY) has for several months sought information on the valuation practices at BlackRock TCP Capital Corp. and has questioned some executives. Bloomberg reports BlackRock declined to comment and the SDNY spokesperson did not respond to comment requests.

In January, TCPC issued an unusual non-periodic announcement, projecting a 19% reduction in the fund’s net asset value. Its share price plummeted 13% that day—the largest single-day drop since March 2020. Subsequently, multiple class-action lawsuits were filed on behalf of investors, alleging the fund made “materially false” statements and failed to properly value its loans.

The news has again raised doubts in the market about the credibility of valuations across the entire private credit industry. TCPC’s share price has dropped 45% over the past year and 24% year-to-date, remaining far below management’s own assessment of portfolio value.

Prosecutors have issued warnings about valuation practices

This investigation aligns with SDNY’s broader trend toward tighter scrutiny of private asset valuations. The office head, Jay Clayton, publicly stated in November last year that he was concerned about how institutions value private assets and warned that “financial regulators and judicial authorities are watching this space.” This week, at a Managed Funds Association conference, he reiterated: “If anyone inflates valuations to earn management fees, that has always been absolutely unacceptable.”

It is not yet clear if the TCPC investigation is part of a broader SDNY probe. The investigation could conclude without any charges being brought.

Massive net asset value shrinkage puts the fund in multiple predicaments

TCPC is a listed Business Development Company (BDC) and in January disclosed that its estimated net asset value per share was between $7.05 and $7.09. About a month later, the fund formally announced its Q4 NAV per share of $7.07, well below the previous market expectation of $8.60 and significantly under the prior quarter’s $8.71. This sharp drop stemmed from the management marking down several loans—loans that were still priced near cost just a few months earlier.

According to the Wall Street Journal, BlackRock acquired TCP from Tennenbaum Capital Partners in 2018. Currently, senior executives from HPS Investment Partners, acquired by BlackRock last year, have stepped in to help manage this troubled fund, holding three seats on its seven-member investment committee. The fund has a market capitalization of about $350 million, a negligible fraction of BlackRock’s overall assets as the world’s largest asset manager.

Opaque valuation: Structural risk in the private credit market

The TCPC case highlights deep contradictions in the $1.8 trillion private credit market. Because most private loans rarely or never trade in the market, their fair value assessments are essentially subjective. Most managers rely on third-party valuation firms for appraisals, and private credit funds catering to retail investors typically only disclose valuations quarterly. BDC investors must rely on management’s valuation of loans, a figure that determines not only the price at which investors enter and exit the fund but also directly impacts the management fee amounts collected.

Last year, mounting doubts about such valuations prompted public private credit fund investors to sell heavily and triggered a wave of redemption requests from investors in so-called “non-listed” private credit funds (a larger market segment). In response, Apollo Global Management announced this month it will introduce daily valuation mechanisms for its private credit funds to address market concerns about transparency.

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