Federal prosecutors probing valuation practices at a BlackRock private credit fund have been met with genuine confusion from executives, who spent Tuesday clarifying that making up the numbers is the foundational premise of the asset class.
Federal prosecutors investigating the valuation practices at one of BlackRock’s flagship private credit funds have encountered unexpected resistance from the asset manager, which spent Tuesday morning patiently explaining to investigators that fabricating the numbers is the foundational premise of the entire industry.
The Department of Justice probe centers on how the $10 trillion financial giant determines the value of illiquid loans made to mid-sized companies. In a regulatory filing responding to the inquiry, BlackRock executives expressed genuine bewilderment as to why the government is searching for objective pricing data in a $1.7 trillion market specifically engineered to avoid it.
We are fully cooperating with the Justice Department, but we are frankly baffled by their search for a so-called 'true value' of these loans. We have been perfectly transparent with our limited partners that these assets are worth precisely what we type into the quarterly PDF.
Private credit has surged in popularity among pension funds and institutional investors precisely because the debt is not traded on open exchanges. This structural opacity allows asset managers to report a smooth, uninterrupted upward trajectory of returns, shielding clients from the distressing reality of market volatility by simply pretending the loans never lose value.
According to sources familiar with the investigation, prosecutors have seized thousands of internal BlackRock communications hoping to find evidence of malicious fraud. Instead, the subpoenaed documents reportedly consist entirely of junior analysts messaging each other to ask if a $400 million valuation "feels a little too aggressive" for a struggling regional dental-supply rollup, before ultimately deciding to enter $450 million into an Excel spreadsheet.