Shares of investment funds managed by large asset managers have weakened recently as investors reassess the quality of private credit loans these vehicles hold. Private credit - direct lending to companies outside traditional banks - has grown into an approximately $2 trillion industry, but recent market moves reflect growing skepticism about transparency and lending discipline in parts of the sector.
The pain is especially evident among vehicles that provide retail investors with exposure to private credit, a segment funds have been actively targeting. Those vehicles typically offer easier access to less-liquid loans but now face selling pressure and limits on redemptions in some cases.
Market signals
Publicly traded business development companies - a primary channel for Americans to invest in harder-to-trade assets - are trading well below the dollar value of their reported assets on average. Research firm Morningstar calculates that these BDCs now trade at an average of 78 cents for every dollar of reported assets, down from 85 cents at the start of the year and roughly a dollar in early 2025. Such discounts indicate investor doubt that the managers' valuations fully reflect what those assets are worth.
Most of the 20 largest BDCs have seen their share prices decline relative to asset values over the past year, and nearly all now trade at discounts rather than premiums. Analysts attribute part of the sector's stress to concentrated lending exposure to software companies - an area facing heightened volatility - and to the rapid expansion of private credit which, according to some observers, pressured managers into competing by offering higher yields or relaxing lending protections.
Where discounts are widest
- FS KKR Capital Corp - trading at 51 cents per dollar of reported assets.
- Blue Owl Technology Finance Corp - trading at 68 cents per dollar.
- Prospect Capital Corporation - trading at 44 cents per dollar.
- Carlyle’s Secured Lending fund - trading at 68 cents per dollar.
- Blackstone’s Secured Lending Fund - trading at 88 cents per dollar.
- The largest BDC, a $31 billion fund managed by Ares Management, trades at 94 cents on the dollar.
Raymond James provided the asset-per-dollar figures for several funds. The companies mentioned either declined to comment or did not respond to requests for comment.
Manager responses and investor behavior
Executives at larger managers have maintained that portfolios remain broadly stable even as market volatility has risen, though some managers have acknowledged borrower stress in particular pockets. Morningstar analyst Jack Shannon has said investors appear to believe the industry’s "best days are behind it" after fast growth prompted firms to compete by offering higher returns or easing protections.
Evercore ISI analyst Glenn Schorr has interpreted the widening discounts as reflecting growing recession fears and expectations of higher loan losses.
Pressure has not been limited to publicly traded BDCs. Non-traded BDCs, which allow investors to redeem a portion of shares each quarter, have also experienced strains. Some of these funds have reduced or capped withdrawals in response to higher redemption requests. For example, Morgan Stanley limited redemptions at one private credit fund after investors sought to redeem almost 11% of outstanding shares. BlackRock recently capped withdrawals at a major fund, and Blackstone saw a surge in redemption requests in the first quarter.
Blackstone President Jon Gray has noted that large institutional investors such as pension funds - which typically have longer lock-ups and commit capital for extended periods - continue to allocate to private credit, suggesting a split between retail and institutional behavior.
Separately, JPMorgan has reduced the valuations on some private credit loans after reviewing the effects of volatility in software-sector borrowers, according to people familiar with the matter.
Sector growth
Despite the recent volatility and investor withdrawals, private credit continues to expand. Law firm Eversheds Sutherland estimates that about 50 traded BDCs hold more than $150 billion in assets between them, while over 100 non-traded BDCs hold roughly $270 billion more.
The combination of continued asset growth and heightened investor scrutiny means private credit managers face the dual challenges of managing portfolio credit risk while reassuring retail and institutional investors about asset valuations and liquidity arrangements.