Key Takeaways
- • Shares of publicly traded private credit funds (business development companies, or BDCs) are down roughly a third from last year's peak, with the VanEck BDC Income ETF off 33% since early 2025, according to Barron's.
- • Individual BDC performance has dispersed sharply: Ares Capital is down 9% this year, FS KKR Capital is down 27%, and Blue Owl Capital Corp. has fallen 38%.
- • Raymond James analyst Robert Dodd notes public BDCs trade at an average of 82% of net asset value, reflecting investor skepticism about privately marked loan valuations.
- • Nontraded BDCs faced redemption requests exceeding the 5% quarterly limits, though Moody's reports new requests slowed in the September quarter, with much of the activity carried over from prior periods.
- • Investors remain concerned about dividend sustainability and AI-driven disruption to software borrowers, with the KKR fund having cut payouts this year.
Summary
Publicly traded business development companies, which extend direct loans to private equity-owned businesses and distribute interest income as high dividends, have sold off sharply. Shares are down about a third from last year's height, and the VanEck BDC Income ETF has fallen 33% since early 2025, with technical support levels failing to hold, according to Barron's.
The sector has fragmented. Ares Capital Corp., the industry leader and the favored name among public BDCs, is down 9% this year. FS KKR Capital is down 27% and Blue Owl Capital Corp. has dropped 38%. Raymond James analyst Robert Dodd observes that public BDCs now trade at an average of 82% of their net asset value, the book values management has assigned to loan portfolios. Part of that discount reflects investor doubt about how those loans are valued internally.
Yields have risen as prices have fallen. Ares yields about 10%, Blue Owl about 12%, and FS KKR about 19%. However, FS KKR has cut its payout this year, and investors fear that artificial intelligence could impair the software companies that many of these funds lend to. Barron's characterizes investors as viewing BDCs as melting snow caps in a warming world.
Nontraded BDCs, which hold a larger pool of capital, also experienced heavy redemption pressure. Requests overwhelmed the 5% quarterly redemption limits, and many funds recorded net outflows. Those exiting were mostly individuals rather than institutions. According to Moody's analysts led by David Tao, new redemption requests slowed in the September quarter and were only slightly below June levels, with much of September's volume consisting of carry-overs from earlier requests that had not been filled under the gates. Moody's sees this as a possible early sign that private credit anxieties are moderating.
Investors considering the high yields should watch dividend coverage. Analyst Michael Gayed noted in his Lead-Lag Report that Ares Capital's regular 48-cent quarterly dividend has not been fully covered by core earnings this year.
The sector has fragmented. Ares Capital Corp., the industry leader and the favored name among public BDCs, is down 9% this year. FS KKR Capital is down 27% and Blue Owl Capital Corp. has dropped 38%. Raymond James analyst Robert Dodd observes that public BDCs now trade at an average of 82% of their net asset value, the book values management has assigned to loan portfolios. Part of that discount reflects investor doubt about how those loans are valued internally.
Yields have risen as prices have fallen. Ares yields about 10%, Blue Owl about 12%, and FS KKR about 19%. However, FS KKR has cut its payout this year, and investors fear that artificial intelligence could impair the software companies that many of these funds lend to. Barron's characterizes investors as viewing BDCs as melting snow caps in a warming world.
Nontraded BDCs, which hold a larger pool of capital, also experienced heavy redemption pressure. Requests overwhelmed the 5% quarterly redemption limits, and many funds recorded net outflows. Those exiting were mostly individuals rather than institutions. According to Moody's analysts led by David Tao, new redemption requests slowed in the September quarter and were only slightly below June levels, with much of September's volume consisting of carry-overs from earlier requests that had not been filled under the gates. Moody's sees this as a possible early sign that private credit anxieties are moderating.
Investors considering the high yields should watch dividend coverage. Analyst Michael Gayed noted in his Lead-Lag Report that Ares Capital's regular 48-cent quarterly dividend has not been fully covered by core earnings this year.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.