Blackstone Secured Lending Fund (BXSL.US), a publicly traded private credit fund managed by Blackstone Group LP (BX), reported a 94% plunge in second-quarter net profit on Thursday, driven by a decline in portfolio asset valuations, though loan performance showed signs of stabilization.

For the three months ending June 30, the fund generated net income of $9 million, a sharp drop from $155 million in the same period last year, largely due to asset write-downs. The fund recorded a $137 million unrealized loss during the quarter, a more than 12-fold increase year-over-year, while realized losses stood at $28 million. Despite these setbacks, net investment income was $174 million, roughly flat with the prior year. Notably, the business development company (BDC) added no new loans to non-accrual status during the quarter.

Market Pressures: Redemption Waves and AI Impact

This year has been challenging for private credit funds, with investors withdrawing capital amid concerns over loan quality and exposure to software companies impacted by advancements in artificial intelligence. While Wall Street debates whether these fears are overblown, they have added pressure on asset prices and the funds holding them. The fund, which manages $13.4 billion in assets, saw its net asset value (NAV) per share fall to $25.53 from $26.26 in the first quarter, below the analyst consensus estimate of $26.19. On a cost basis, non-accrual loans represented 3.6% of the portfolio, better than the 4.73% estimated by two analysts. Payment-in-kind (PIK) income declined during the quarter, while the number of assets marked below $0.85 per share—a level typically considered distressed—also decreased.

Portfolio Restructuring and Capital Deployment

The fund intensified its portfolio adjustments in the second quarter. Repayments surged to over $700 million, while new committed investments totaled just over $300 million, reflecting a net contraction in investment activity. The fund added five new portfolio companies while exiting eight investments, streamlining its overall portfolio. In terms of sector allocation, software remains the largest investment area, though its exposure is gradually being optimized. Notably, a consortium led by Blackstone Group LP (BX) took over the heavily indebted Medallia Inc. from Thoma Bravo in June, injecting $100 million in new capital, signaling the firm's active engagement in restructuring and rescuing distressed assets. During the period, fund repayments exceeded new investments, with repayments topping $700 million versus just over $300 million in new commitments. The fund added five new portfolio companies and exited eight investments, with software continuing to be its largest investment sector.