Key Takeaways
- • Business Insider's analysis found advisors have collected at least $796 million in commissions and fees selling commission-bearing share classes of retail private credit funds since March 2020.
- • A 2020 SEC exemptive order, which allowed business development companies (BDCs) to offer multiple share classes with different fee structures, removed a key barrier to distributing private credit to wealthy individual investors.
- • Non-traded and private BDCs raised $35 billion from 2013 through 2020 and $152 billion since, according to Houlihan Lokey, while BDC fair-value portfolios grew from $21.5 billion to $393.6 billion over the same period.
- • Business Insider estimates total commissions and fees could exceed $1 billion, though most firms do not disclose upfront commission figures; only Blue Owl reported $67.6 million in upfront commissions across its two non-traded BDCs.
- • Fee-bearing share classes materially reduce investor returns: Blue Owl Credit Income Corp Class I shares returned 9.17% annualized versus 7.51% for Class S shares, with more than a quarter of Class I investors' gains redirected to brokers in one illustrated example.
Summary
Business Insider reports that advisors have collected at least $796 million selling retail private credit products since 2020, a sum it attributes to an obscure SEC exemption that reshaped how private credit is distributed to affluent individual investors. The exemption addressed a long-standing obstacle: BDCs were unable to offer multiple share classes, which, according to a 2020 memo from Eversheds Sutherland, facilitates distribution by allowing commission structures that incentivize advisors to sell.
The path to approval was lengthy. Future Standard applied in October 2014 for its FS Energy and Power Fund, arguing BDCs should be permitted multiple share classes as mutual funds have been since 1995. The application took over five years and four amendments, with the SEC signaling approval in January 2020 and the official green light in February 2020. Blackstone's BCRED, now the industry's largest with $45 billion in net assets, filed its draft registration in February 2020 and had its application accepted in October 2020. Blue Owl, then Owl Rock, had its application accepted a month earlier, and Ares, Apollo, BlackRock and others later applied for the same exemption.
Business Insider's analysis indicates roughly 71% of outstanding shares across major non-traded BDCs offering multiple classes are Class I shares, which carry no sales commissions or servicing fees; at BCRED, Class I accounts for 68%. Commission-bearing Class S and Class D shares can be sold by advisors and broker-dealers. Business Insider identified $711 million in servicing and distribution fees, including $354 million paid by BCRED since 2021 and $138 million by Blue Owl across its two BDCs, and estimates upfront commissions may total over $315 million, based on Blue Owl's disclosed ratio.
Industry views differ. Dhruv Maniktala, CIO of True North Advisors, told Business Insider that promised yields were the primary demand driver, though he said growth had been helped by brokers with large incentive shares. One industry insider argued fees have put the asset class on par with other investments. A Blackstone spokesperson did not comment on fees but cited BCRED's Class I annualized return of 9.3%. Activist investor Boaz Weinstein, who has targeted Blue Owl's funds, has urged retail investors to ask advisors how much they were paid. Weinstein declined an interview for the story, and Blackstone's BCRED recently received redemption requests for 10% of shares in the second quarter.
The path to approval was lengthy. Future Standard applied in October 2014 for its FS Energy and Power Fund, arguing BDCs should be permitted multiple share classes as mutual funds have been since 1995. The application took over five years and four amendments, with the SEC signaling approval in January 2020 and the official green light in February 2020. Blackstone's BCRED, now the industry's largest with $45 billion in net assets, filed its draft registration in February 2020 and had its application accepted in October 2020. Blue Owl, then Owl Rock, had its application accepted a month earlier, and Ares, Apollo, BlackRock and others later applied for the same exemption.
Business Insider's analysis indicates roughly 71% of outstanding shares across major non-traded BDCs offering multiple classes are Class I shares, which carry no sales commissions or servicing fees; at BCRED, Class I accounts for 68%. Commission-bearing Class S and Class D shares can be sold by advisors and broker-dealers. Business Insider identified $711 million in servicing and distribution fees, including $354 million paid by BCRED since 2021 and $138 million by Blue Owl across its two BDCs, and estimates upfront commissions may total over $315 million, based on Blue Owl's disclosed ratio.
Industry views differ. Dhruv Maniktala, CIO of True North Advisors, told Business Insider that promised yields were the primary demand driver, though he said growth had been helped by brokers with large incentive shares. One industry insider argued fees have put the asset class on par with other investments. A Blackstone spokesperson did not comment on fees but cited BCRED's Class I annualized return of 9.3%. Activist investor Boaz Weinstein, who has targeted Blue Owl's funds, has urged retail investors to ask advisors how much they were paid. Weinstein declined an interview for the story, and Blackstone's BCRED recently received redemption requests for 10% of shares in the second quarter.
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