A $140 Million BlackRock Loss Revives Private Credit Worries

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Alex Ossola (0:33)

Former CNN anchor Don Lemon was arrested over a protest at a Twin Cities church. Plus, the private credit market is showing some cracks.

Matt Wirz (0:42)

These funds can drag out the write downs of their assets because there is this opacity. And so you as an investor may not know that you're sitting on some time bombs in your fund that can turn into a massive loss, as it did in this case.

Alex Ossola (0:57)

And will Trump's Fed chair pick be a friend to Wall Street? Investors aren't sure. It's Friday, January 30th. I'm Alex Ossola for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

Former CNN anchor Don Lemon has been arrested by federal agents over a protest that disrupted a church service in St. Paul, Minnesota earlier this month. Lemon, who now works independently, said he was there as a journalist, not a participant. Lemon's lawyer called the arrest an attack on free speech. The arrest came following pressure from President Trump to prosecute protesters who have clashed with federal agents in the Twin Cities. A magistrate judge last week declined to sign off on a complaint charging Lemon. And a judge ruled today that federal prosecutors can't seek the death penalty for Luigi Mangione, who's charged with killing a United Health Care executive. Three pieces of news from the president and the administration. The Justice Department today began releasing its latest batch of documents related to its investigation of Jeffrey Epstein. It's more than 3 million pages of files, with thousands of videos and photos. The Justice Department began the Epstein document dump last month after Congress in November passed a law mandating the release of the files. Also from the Justice Department, the FBI is leading an investigation into whether federal agents who fatally shot Alex Predi in Minneapolis violated his civil rights. Public outcry prompted the Justice Department to expand what had been a more limited probe. And President Trump, acting in his personal capacity, has sued the IRS and the Treasury Department. He says the agencies didn't do enough to stop a contractor from leaking his tax returns to the press in 2019 The lawsuit seeks at least $10 billion from the US government that he runs. The White House, IRS and Treasury Department didn't respond to requests for comment. The private credit boom on Wall Street is raising some concerns for investors again. One of BlackRock's private credit funds surprised investors last week when it reported a $140 million loss and marked down the value of its holdings by 19%. The decline just highlights how hard it is to know how much these investments are worth, even as Wall Street and the Trump administration are pushing to make products like these even more widely available to Main Street investors. I'm joined now by Matt Wirz, who covers credit for the journal. Matt, why are these types of investments so hard to value?

Matt Wirz (3:33)

The short answer is in the name. They are private. So they're a corporate loan that BlackRock might make to a small or mid-size manufacturer of roof supplies, for example. And so these are loans that this fund makes to these companies, but there's no marketplace to trade them. And as a result of that, there's no clearly available price, and it's up to the discretion of the funds manager to determine what the value of the investment is. More and more corporate loans in this country have moved out of the banking system into these private credit funds, which are super hot and super lucrative for Wall Street, but they are less transparent than stocks, bonds, or even large corporate loans that banks make and then trade in the market.

Alex Ossola (4:27)

What does this mean for ordinary investors?

Matt Wirz (4:29)

What's noteworthy here is how quickly this fund changed its story on what these assets were worth. Just a couple months ago, they and some of the other investments were worth $140 million more, and these are companies that were in trouble for years. That this fund in particular has already written down. BDCs are very widely held by individual investors.

Alex Ossola (4:54)

Matt, one second. Let me just tell listeners, BDCs are business development companies that typically make high interest loans to companies, and this BlackRock fund we're talking about is an example of one.