BlackRock (BlackRock) has restricted withdrawals from one of its major private credit funds following a sharp increase in redemption requests, as investors pull back from this asset class and questions about credit quality rise.

The $26 billion institutional lending fund, acquired by BlackRock as part of its acquisition of HPS Investment Partners, a private credit firm, last year for $12 billion, approved meeting 54% of redemption requests during the first quarter, according to a letter to fund investors.

The fund received redemption requests totaling $1.2 billion during the quarter, representing about 9.3% of its net assets. HPS informed investors that it would pay $620 million in the upcoming redemption cycle, reaching the 5% cap that allows the asset manager to restrict further withdrawals.

The decision to set the withdrawal limit at 5% is expected to undergo extensive scrutiny within the financial sector, amid increasing outflows from semi-liquid private credit funds, which had attracted hundreds of billions of dollars from retail and high-net-worth investors lured by high returns before some began to withdraw as early signs of market stress appeared.

The wave of withdrawals was partly triggered by the default of two auto parts suppliers last year, raising questions about the due diligence standards in corporate lending markets.

Since then, pressures have intensified with sporadic write-downs in funds managed by KKR, Apollo Global Management, Blackstone, and a fund managed by BlackRock. Additionally, the Federal Reserve’s decision to cut interest rates last year increased sector pressure, prompting some funds to reduce their dividend payouts.

Conversely, several funds have agreed to meet redemption requests exceeding 5%, as executives hope that not imposing additional restrictions will help calm investor concerns.

Blackstone earlier this week agreed to fulfill all redemption requests received for its $82 billion private credit fund, the largest in the sector, after redemption requests rose to 7.9% of the fund’s assets.

However, analysts questioned whether the sector could absorb such high levels of withdrawals, given that semi-liquid funds typically hold illiquid loans that are rarely traded.

In another development, Blue Owl halted all redemptions last month in one of its funds, increasing market turmoil at a time when investors were already retreating from this asset class.

HPS told investors on Friday that the maximum redemption limit was a “key factor” in the fund’s recent performance, which achieved a total return of 9.1% after fees last year.

The company added in its letter, “Without this measure, a structural mismatch would emerge between investors’ capital and the expected duration of the private credit loans in which the HLEND fund invests.”

It also noted that it had previously restricted inflows when attractive investment opportunities were scarce, rather than diluting returns for current shareholders or compromising its underwriting standards.