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Blackstone Secured Lending Faces Scrutiny: Risks Revealed

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  //business-finance.news-articles.net/content/202 .. cured-lending-faces-scrutiny-risks-revealed.html
  Published in Business and Finance on Friday, January 2nd 2026 at 14:47 GMT by Seeking Alpha

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Blackstone Secured Lending (BSL): A Deeper Look Reveals Significant Risks, Making It an Avoidance for Income Investors

Blackstone Secured Lending Partners (BSLP), often touted as a compelling income investment due to its association with the renowned private equity giant Blackstone, is facing increasing scrutiny. A recent Seeking Alpha article by Kerris Investments delivers a stark warning: BSL isn't the safe haven it appears to be and represents a risky proposition for income-seeking investors. The author argues that a closer examination of the fund’s strategy, portfolio composition, and performance reveals fundamental flaws that outweigh any perceived benefits. This analysis delves into those concerns, explaining why Kerris Investments believes BSL should be avoided.

The Core Business: Direct Lending & Its Challenges

BSL operates as a business development company (BDC), primarily focused on providing direct lending to middle-market companies. Direct lending, in theory, offers higher yields than traditional corporate bonds because it caters to businesses often too small or complex for public debt markets. However, this also means these borrowers are inherently riskier. The Seeking Alpha article highlights that BSL’s strategy has become increasingly reliant on larger deals and “sponsor-driven” loans – meaning loans made to companies backed by private equity firms like Blackstone itself. While sponsor-driven loans can offer higher yields, they also carry significant concentration risk and expose the fund to the whims of those sponsors' investment decisions.

The Problem: Portfolio Concentration & Declining Credit Quality

Kerris Investments’ primary concern revolves around BSL’s portfolio concentration. A substantial portion – over 30% as of Q2 2024 - is allocated to loans originated in the technology sector, and a significant chunk of that is tied to sponsor-driven deals within that sector. This high concentration exposes BSL to downturns specific to the tech industry, which has been facing headwinds including rising interest rates and slowing growth. The article points out that many of these borrowers are experiencing difficulties servicing their debt, leading to increased credit deterioration.

Furthermore, the author emphasizes a concerning trend: BSL's portfolio is aging. The weighted average age of the portfolio has increased, indicating that loans are taking longer to mature or be repaid. This suggests potential issues with borrower performance and an increasing likelihood of defaults down the line. The article references BSL’s own disclosures which acknowledge this issue, stating they are seeing "increased stress" in certain borrowers.

Fee Structure & Alignment Issues: A Conflict of Interest?

A critical element of Kerris Investments' critique centers on BSL’s fee structure and potential conflicts of interest. As a Blackstone-affiliated entity, BSL pays substantial fees to Blackstone for investment management and other services. These fees significantly erode investor returns, particularly when the fund isn't performing exceptionally well. The author argues that this creates a misalignment of interests – Blackstone benefits from these fees regardless of BSL’s performance, while investors bear the brunt of any losses.

The article highlights that Blackstone often originates loans within its own private equity portfolio and then sells them to BSL. While this can generate profits for Blackstone, it raises questions about whether these loans are being sold at favorable terms for BSL's investors. It suggests a potential "sweetheart deal" scenario where BSL is absorbing riskier assets to benefit the broader Blackstone ecosystem.

Performance Disconnect: Yield Doesn’t Equal Safety

BSL boasts a relatively high dividend yield, which often attracts income-focused investors. However, Kerris Investments argues that this yield is unsustainable and masks underlying problems. The author points out that BSL's net investment income (NII), the key metric for BDC profitability, has been declining. While distributions have been maintained, they are being supported by one-time gains and recycled capital – a practice that cannot be sustained long term.

The article contrasts BSL’s performance with other BDCs, demonstrating that its yield is not commensurate with the level of risk it undertakes. Many peer BDCs offer comparable or even higher yields with more conservative investment strategies and stronger credit quality within their portfolios. BSL's total return has also lagged behind many competitors, further undermining the argument for its attractiveness as an income investment.

The Author’s Conclusion: A Recommendation to Avoid

Ultimately, Kerris Investments concludes that BSL is not a suitable investment for most income investors. The combination of portfolio concentration in a struggling sector, declining credit quality, a problematic fee structure with potential conflicts of interest, and unsustainable distribution practices creates an unacceptable level of risk. The author strongly advises investors to seek alternative BDCs with more diversified portfolios, stronger management teams, and better alignment of interests.

Beyond the Article: Further Considerations

While Kerris Investments’ analysis is compelling, it's important for potential investors to conduct their own due diligence. Examining BSL’s latest quarterly reports (available on its investor relations website) provides further insight into portfolio composition, credit quality metrics, and management commentary. Understanding the nuances of direct lending and the risks associated with sponsor-driven loans is also crucial before considering an investment in BSL or any similar BDC. The Seeking Alpha article serves as a valuable cautionary tale – even investments backed by reputable firms like Blackstone require careful scrutiny to ensure they align with individual risk tolerance and investment goals.

Disclaimer: I am an AI chatbot and cannot provide financial advice. This summary is for informational purposes only and should not be considered a recommendation to buy or sell any securities.