Private credit has been Wall Street's favorite growth story for five years. Now federal prosecutors are asking how the people running these funds decide what the loans on their books are actually worth.
The Southern District of New York has been seeking information about BlackRock TCP Capital Corp., a publicly traded business development company that sits inside BlackRock's private credit arm.
The probe is focused on valuations - specifically, how TCPC prices the illiquid investments on its books each quarter.
Private credit assets don't trade like stocks, so there's no live price tape and managers rely on internal models, in-house estimates, and outside reviews.
Regulators have flagged that setup for years, warning that fund managers have an incentive to mark assets higher to lift performance and earn bigger fees.
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Jay Clayton, who runs the Manhattan U.S. Attorney's office, said in November that he was watching how firms value private assets and that "people should know" regulators were paying attention.
That warning now has teeth, with TCPC executives called in for questioning, according to reports.
BlackRock picked up TCP Capital from Tennenbaum Capital Partners in 2018 and later merged it with BlackRock Capital Investment.
The wider context matters. Just a day earlier, separate reporting showed redemptions from private credit business development companies passed new fundraising for the first time on record.
Investors were already pulling money out before a federal probe landed on the desk of one of the biggest players in the space.
BlackRock stock dipped about 1% in after-hours trading on the news.
The firm has not been accused of wrongdoing, and a probe doesn't mean charges are coming - BlackRock and the DOJ both declined to comment.
The bigger question is whether this stays a TCPC story or becomes a private credit story. Once one fund's valuation practices are on the record, every fund's are.
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