Department of Justice Probes BlackRock's TCP Capital Fund Valuations

Investigation Unfolds at BlackRock’s TCP Capital Corp.

Federal prosecutors are intensifying their scrutiny of valuation practices at BlackRock’s TCP Capital Corp., a publicly traded business development company. According to sources familiar with the situation, the Manhattan US Attorney’s office is probing whether the fund has misrepresented the values of its assets, leading to substantial declines in share prices and prompting investor lawsuits.

Background of the Inquiry

The inquiry comes on the heels of a significant announcement from BlackRock, which revealed a staggering 19% reduction in the expected asset value of TCP Capital earlier this year. This disclosure spurred concerns among investors, causing the fund’s shares to plummet by 13% in a day, marking the steepest decline since March 2020. Following this announcement, multiple class-action lawsuits were filed against the company, alleging that BlackRock made “materially false” statements regarding its asset valuations.

In recent comments, Jay Clayton, who leads the Southern District of New York, emphasized the importance of accurate valuations in the private credit market. He cautioned that mismarking assets for fee generation purposes has always been against regulatory standards.

Valuation: A Critical Factor for Investors

Investors in business development companies (BDCs) like TCP Capital rely heavily on the valuations attributed to their loans, as there is no active market for trading these assets. Accurate asset pricing is crucial as it impacts the pricing at which investors can enter or exit their investments. Furthermore, the asset values directly affect the management fees collected by firms overseeing these funds.

The January 2026 off-cycle disclosure by TCP Capital, highlighting a preliminary asset value per share of between $7.05 and $7.09, was notably unusual, as funds typically report their valuations on a quarterly basis. Shortly after, the fund calculated its fourth-quarter net asset value at $7.07, a significant decrease from $8.71 just a few months prior. This drastic markdown underscores the volatility and rapid changes in asset valuations within the $1.8 trillion private credit market.

Wider Implications for the Private Credit Market

Although it remains unclear whether BlackRock's probe is part of a larger investigation by the Southern District of New York, it serves as a warning to firms operating within the private credit sector about the heightened scrutiny regarding their asset valuation methodologies. As the industry faces increasing stress and scrutiny over lending practices, the focus on accurate valuation will likely intensify, forcing firms to adopt more stringent reporting and risk management practices.

BlackRock’s management of TCP Capital has undergone changes since acquiring the firm from Tennenbaum Capital Partners in 2018. Following BlackRock's acquisition of HPS Investment Partners, HPS executives now play a significant role in managing TCP Capital, occupying key positions on the fund’s investment committee.

As the Department of Justice continues its investigation, the ongoing scrutiny highlights the critical importance of transparency and accuracy in asset valuations, a vital component for investor trust and market stability.