BlackRock’s troubled history in private credit

One scoop to start: UK chancellor Rachel Reeves is expected to announce plans to cut the annual tax-free cash Isa allowance in her Mansion House speech later this month, in an effort to shift some of the £300bn cash pile into British companies.

In today’s newsletter:

• BlackRock tried private credit once before. Will this time be better?

• Fidelity and Schroders bought gilts during market slump

• Retail investors reap big gains from ‘buying the dip’ in US stocks

BlackRock’s troubled history in private credit

Last week, BlackRock completed the $12bn takeover of HPS Investment Partners, the third in a trio of acquisitions that shift the world’s largest asset manager from a position of dominance in public markets to one where it straddles both public and private assets.

How it integrates the private credit group is crucial to BlackRock’s success in the fast-growing alternatives sector, widely regarded as the future of global capital markets. And with HPS, the stakes are all the higher because BlackRock’s previous efforts to break into private credit have not quite played out as planned. 

In this deep dive, Eric Platt in New York takes a look at BlackRock’s 2018 acquisition of private credit manager Tennenbaum Capital Partners — a deal described by one recent employee as “a disaster”. 

Indeed part of the work of the 800 HPS employees who now work for BlackRock will be cleaning up the issues in that pre-existing private credit portfolio, which continues to set off fireworks.

BlackRock’s bet on Tennenbaum gave it a toehold in the burgeoning direct lending market — where asset managers bypass banks to underwrite loans directly to companies — and an investment team to buy riskier bonds and loans.

But almost from the start things went sideways. Tennenbaum focused heavily on so-called opportunistic credit, generally riskier deals. Its direct lending funds were also smaller than larger rivals and it did not have a vast fundraising team. That meant it often took a small slice of deals its competitors were leading. But if a deal went south, Tennenbaum was not in a position of control.

The unit suffered poor fund performance, high staff turnover and a handful of credit deals that ultimately soured.

Tennenbaum injected “a higher risk tolerance than BlackRock thought they . . . were buying,” one former employee said. “That oversight was because it was an acquisition done in the blind pursuit of scale and growth.”

The integration of HPS will involve meshing an independently minded target with a much larger acquirer. The challenge for the private credit group’s founder Scott Kapnick and his team will be to keep returns elevated as money pours into the private credit industry.

“We’re ready to hit the ground running,” Kapnick said at BlackRock’s investor day last month. “The combination of BlackRock and HPS creates an asset manager with breadth and scale to compete with anyone.”

Founder Larry Fink says he is confident HPS will take to BlackRock. “Strategic acquisitions have strengthened our firm,” he said last month.

Bond managers catch a falling gilt

Bond fund managers are known for their long-term calls on the path of interest rates and inflation. But a new period of volatility across sovereign bond markets fuelled by record borrowing levels, higher interest rates and structural changes in demand is throwing up shorter-term trading opportunities too. 

That was on full display last week during a sharp sell-off in the UK government bond market, writes Ian Smith in London. Images of a tearful chancellor, Rachel Reeves, spooked investors already fretting about a string of bad news for Britain’s public finances, including a U-turn on welfare reforms. 

As gilt prices fell with the pound, pushing up the relative yield on offer on UK debt versus other sovereign markets, some managers pounced. BlackRock, Schroders and Fidelity International all added to their bets on gilts.

Julien Houdain, head of global unconstrained fixed income at Schroders, said the firm took the position as it was “so obvious that the market is going to back Reeves”.

Since central banks started to normalise monetary policy after the Covid-19 crisis, a steady rise in global bond yields has pushed prices lower and turned up the pressure on debt sustainability. But the scale of the sell-off in long-term debt markets has pushed yields to levels that are making some trades hard to turn down.

Last month Andrew Balls, head of global fixed income at Pimco, pointed to the “trading opportunity” in a “dislocated” market for long-term Japanese debt, which it had added to its portfolio. 

Last week’s gilts episode demonstrated that the market was not experiencing the scale of selling it suffered after the ill-fated “mini” Budget in 2022, and that there were buyers ready to step in. But the sell-off showed how fragile investor confidence is in Britain’s precarious fiscal position — and fund managers warned that the market remains on edge.

“All bond markets are sensitive to uncertainty regarding the fiscal stance, but perhaps the UK is the most sensitive developed market,” said Fredrik Repton, a senior fixed income portfolio manager at Neuberger Berman.

Chart of the week

Retail traders “buying the dip” in US stocks this year have racked up the biggest profits since the early stages of the Covid-19 crisis, writes George Steer in New York, helping to fuel a rally that has pushed Wall Street equities to record highs.

Individual investors have poured a record $155bn into US stocks and exchange traded funds during 2025, according to data provider VandaTrack, surpassing the meme-stock boom of 2021.

They continued to buy even as President Donald Trump’s blitz of tariffs on US trading partners sent stock markets tumbling in April — and their faith in the time-honoured strategy of piling in after stocks fall in anticipation of a rebound has paid off.

The Nasdaq 100 index of large-cap US technology stocks has risen 7.8 per cent this year. But an investor who bought the index only when it had fallen during the previous trading session would have locked in a cumulative return of 31 per cent over the same period, according to analysis by Bank of America. 

“Pops and drops will occur . . . but the dip-buying belief has become the new religion,” said Mike Zigmont, co-head of trading and research at Visdom Investment Group.

The habit of buying into stock weakness has become increasingly hard-wired into investors in the decade and a half of buoyant US markets that followed the 2008-09 global financial crisis, during which downturns have tended to be shortlived.

The returns so far in 2025 are the best for Bank of America’s hypothetical dip-buying model at this stage of the year since early 2020, and the second best return in data going back to 1985. 

Vanda’s senior vice-president of research Marco Iachini said “retail investors remain a major force in the market” and that their “dip-buying bias is fully intact”.

But dip-buyers are playing a risky game by opting not to cash out when prices surge, according to Rob Arnott, chair of asset management group Research Affiliates.

“Dip-buying works brilliantly until it doesn’t,” he added. “When you have a meltdown, it’s a quick path to deep regret.”

Five unmissable stories this week

Hedge fund performance figures have landed for the first half: Citadel and Millennium Management have been outshone by smaller rivals like Balyasny and ExodusPoint; meanwhile Sir Christopher Hohn’s activist hedge fund TCI is up 21 per cent.

A European insurance group created by Apollo Global Management has struck a £5.7bn takeover of UK retirement savings group Pension Insurance Corporation, a deal that would further push the US alternative assets giant into the UK insurance market.

In defence of private equity: the industry is delivering strong returns to investors and has more potential to extend its benefits to employees, writes Pete Stavros, co-head of private equity at alternatives giant KKR, in this op-ed.

Asset managers made a “huge mistake” in claiming the investment industry could “save the world”, says Sir Douglas Flint, the departing chair of Aberdeen Group, over-egging their role in environment, social and government issues for marketing purposes.  

Crypto firms and traders are pouring billions of dollars into tokenised versions of money market and Treasury bond mutual funds, as they look beyond stablecoins to other places to park excess cash that can also give them some yield.

And finally

The best summer books of 2025. FT editors, columnists and specialists share the titles that have inspired them.