US federal prosecutors are examining valuation practices at a private credit fund managed by BlackRock, marking a new escalation in regulatory scrutiny of the fast-growing private credit sector. According to people familiar with the matter, the US Attorney’s Office for the Southern District of New York has in recent months requested information related to BlackRock TCP Capital Corp, a listed credit investment vehicle linked to BlackRock’s private credit operations.
The inquiry by the US Attorney’s Office for the Southern District of New York, a key federal prosecutorial body in Manhattan, focuses on how the fund values its holdings in illiquid private loans. Such assets often lack transparent market pricing, giving managers significant discretion in determining valuations. The scrutiny reflects broader concerns among regulators and investors that some private credit firms may be overstating asset values to support fees and performance metrics in a sector that has expanded rapidly in recent years.
The investigation does not necessarily imply wrongdoing, and officials have emphasised that inquiries at this stage can close without enforcement action. However, the development adds pressure to an industry already under growing attention. Jay Clayton, head of the US Attorney’s Office for the Southern District of New York and former chair of the US Securities and Exchange Commission, recently said he supports the growth of private credit but would investigate potential misconduct, including the practice of “mismarking” assets to inflate returns or fees.
Concerns about valuation integrity have been building across private credit markets, where lenders provide financing to companies through loans that are often highly customised and difficult to price. Some borrowers use flexible repayment structures, including “payment-in-kind” arrangements that allow interest to be added to principal rather than paid in cash, a feature critics argue can obscure financial stress and delay recognition of defaults.
Investor anxiety has also increased amid broader market volatility linked to technology disruption, prompting some withdrawals from private credit funds in recent months. In the case of BlackRock TCP Capital Corp, the fund previously reduced the value of its loan portfolio by 19 per cent in a late-January write-down, with troubled exposures including companies such as Razor Group, SellerX, and education technology firm Edmentum.
The fund has also faced separate legal pressure, including a class action complaint alleging it failed to properly disclose risks and overstated its net asset value, claims the company has denied. BlackRock and the Southern District of New York have declined to comment on the latest inquiry, which was first reported by Bloomberg. The development highlights increasing regulatory focus on valuation practices in private credit, an asset class that has become central to modern alternative investing but remains vulnerable to opacity concerns.
