Private debt managers’ huge bet on private wealth ran into serious trouble in Q1, as investors looked to pull billions of dollars from (business development companies) BDCs.
Redemption requests from the 12 largest non-traded BDCs averaged 12.1% Q1 2026 (median: 10.1%), well above the 5% threshold at which managers typically gate redemptions.
Seven funds opted to gate withdrawals at 5%, with investors being cashed out on a pro-rata basis, while a handful – Blackstone Private Credit Fund, Oaktree Strategic Credit Fund and Monroe Capital Income Plus – honored all requests after redemptions came in slightly above 5%.
Overall, these 12 funds – which between them account for over 80% of non-traded BDC assets – received a little over $15 billion in redemption requests in the quarter, ultimately honoring 53.4% of these requests.
Non-traded BDC redemptions, 2025-26
| Managers | Total assets ($bn) | Net assets ($bn) | Q1 25 | Q2 25 | Q3 25 | Q4 25 | Q1 26 |
|---|---|---|---|---|---|---|---|
|
Blackstone |
86.0 |
47.6 |
1.5% |
2.6% |
1.8% |
4.5% |
7.9% |
|
Blue Owl |
37.0 |
19.8 |
1.4% |
2.9% |
1.8% |
5.2% |
21.9% |
|
HPS Investment Partners |
26.3 |
12.4 |
2.4% |
2.0% |
1.6% |
4.1% |
9.3% |
|
Apollo Global Management |
25.9 |
14.8 |
1.4% |
1.8% |
3.0% |
4.8% |
11.2% |
|
Ares Management |
22.7 |
10.5 |
0.5% |
1.8% |
0.9% |
5.6% |
11.6% |
|
Goldman Sachs |
16.3 |
8.6 |
1.4% |
2.3% |
1.3% |
3.5% |
5.0% |
|
Golub Capital |
10.2 |
4.5 |
0.2% |
1.0% |
1.6% |
1.7% |
1.6% |
|
Oaktree Capital |
7.8 |
4.7 |
0.6% |
4.7% |
1.5% |
4.2% |
8.5% |
|
Morgan Stanley |
7.0 |
3.4 |
2.0% |
3.1% |
3.1% |
5.3% |
10.9% |
|
Blue Owl Tech |
6.5 |
3.6 |
3.3% |
4.5% |
2.7% |
15.4% |
40.7% |
|
Monroe Capital |
6.1 |
2.8 |
0.4% |
0.6% |
1.5% |
2.5% |
5.3% |
|
Barings |
5.1 |
2.8 |
0.6% |
2.7% |
1.9% |
3.9% |
11.3% |
Source: With Intelligence analysis of SEC filings.
Shares in publicly-traded BDCs also sold off sharply, with the VanEck BDC Income ETF (BIZD) – which holds shares in 35 of the largest public BDCs – trading down 10.2% in Q1. The fund sold off further in April before recovering some ground, and was down 10.9% YTD as of 24 April.
Ultimately, the triggers for the Q1 BDC redemption wave are not a secret: investors, already spooked by the First Brands, Tricolor and MFS bankruptcies, pulled the trigger as talk of an AI-driven “SaaS-pocalypse” led to a sharp sell-off in software loans.
For their part, private credit managers have appealed for calm, arguing that, if anything, the selloff presented an attractive buying opportunity.
Blue Owl said there was a “meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio” after investors attempted to pull over $5 billion from two of its BDCs, OCIC and OTIC, while Blackstone CEO Steve Schwarzman slammed what he called “an intensely negative campaign” on the $1 trillion manager’s Q1 earnings call.
Oaktree, which honored 8.5% redemptions from its $7.8 billion Oaktree Strategic Credit Fund, wrote that it saw the private credit sell-off as a “correction rather than the crisis.”
So who is right? We looked at several key metrics of credit quality in non-traded and public BDCs, as well as speaking to market participants on both sides of the divide, to try and make sense of the current state of play in the sector.Samples: 12 largest tendering BDCs, which cumulatively represent a little over 80% of nontraded BDC assets; 20 largest listed BDCs, which cumulatively represent a little over 80% of listed BDC assets.
Industry concentration
Our sample of 12 non-traded BDCs had an average of 19.7% (median: 19.4%) exposure to the software sector as of year-end 2025.
However, once “software-adjacent” industries – such as healthcare technology, professional services and IT services – are added, this figure rises to 35.6% (median: 34.1%), revealing a high degree of exposure to potential AI risks.
Orlando Gemes, CIO at credit hedge fund Fourier Asset Management, argues this represents a departure from the principles of sound asset allocation.
“In an asset class where the weighted-average rating sits at single-B, concentrated exposures, whether to single borrowers, single sponsors, or sectors like enterprise software represent a fundamental violation of portfolio construction discipline,” he says.
“The idiosyncratic tail in sub-investment-grade credit is too fat to absorb without diversification. We’re seeing the consequences play out across the BDC complex now.”
Bill Sacher, head of private credit at Adams Street Partners in New York, says several managers are overexposed to the software sector, but says the sell-off has been indiscriminate.
“A number of managers have overindulged in software, but at the same time, every software company is being painted with the same brush,” says Sacher.
“AI will likely be disruptive to some of these named, but it won’t necessarily be true for all of them – some may ultimately benefit.”
Non-accruals, PIK income: trending upwards
Our non-traded BDC sample has seen a small but steady rise in both non-accruals payment-in-kind (PIK) income over the past two years.
Based on a review of 10-K filings, non-accruals in non-traded BDCs averaged 0.6% (median: 0.5%) in 2025, while PIK income averaged 4.6% (median: 4.5%).
No funds in our sample had a non-accrual rate above 1%, but there was significant dispersion in PIK income: Blue Owl’s OTIC, which invests heavily in technology, recorded 12% PIK income in 2025, while Goldman Sachs’ GSCR received just 0.8% of its income from PIK over the same period.
The non-traded BDC sample compares favorably with the 20 largest listed BDCs, where non-accruals average 2.1% (median:1.7%), while PIK income sits at 8.1%.
Sources who spoke to us said that this difference can largely be attributed to the fact that non-traded BDCs are typically younger than listed funds, with most of the growth of the sector coming after the Covid-19 pandemic.
By contrast, listed funds have a higher concentration of “problem” vintages – such as 2021 software loans, originated at peak valuations in the sector – as well as loans issued at the tail-end of the zero interest rate era, which were not underwritten in anticipation or rate rises.
NAV, total returns decline
Of 32 BDCs in our sample, 27 saw a decline in net asset value per share in 2025. Among non-traded BDCs, the average decline was 1.7% (median: 2%), while listed BDC NAVs fell by an average of 3.8% (median: 2.5%).
Both samples show significant dispersion: among non-traded BDCs, Monroe’s Credit Income Plus fund saw the sharpest NAV decline at 4.8%, while Golub Capital’s non-traded BDC, GCRED, was the only fund to record an increase in NAV, rising by 0.04%.
The largest non-traded BDCs have generally held up better than their listed peers, however. In the listed sample, Prospect Capital Corp (PSEC) saw the sharpest NAV per share decline, falling by 20.8% in 2025, while Main Street Capital (MAIN) appreciated by 5%:
A common question from critics of BDCs, however, is how “real” the stated NAVs of these funds are – and most listed funds currently trade at a significant discount to NAV.
As of 24 April, the average listed BDC traded at a price-to-NAV ratio of 0.85x, or a 14.7% discount to NAV (median: 0.80x/20.4% discount).
While non-traded BDC portfolios generally look healthier than their listed counterparts – with lower PIK and non-accrual levels – these figures suggest that the market largely believes BDC NAVs are overstated.
Listed BDCs, price-to-NAV ratio
| Manager | Total assets ($bn) | NAV per share ($) | Share price ($) | Price/NAV |
|---|---|---|---|---|
|
Ares Management |
31.2 |
19.94 |
18.67 |
0.94 |
|
FS/KKR |
13.7 |
20.89 |
10.52 |
0.50 |
|
Blue Owl |
17.2 |
14.81 |
11.27 |
0.76 |
|
Blackstone |
14.7 |
26.92 |
23.40 |
0.87 |
|
Golub Capital |
8.9 |
14.84 |
13.29 |
0.90 |
|
Prospect Capital |
6.5 |
6.21 |
2.73 |
0.44 |
|
Main Street |
5.7 |
33.33 |
54.06 |
1.62 |
|
Morgan Stanley |
3.9 |
20.26 |
15.03 |
0.74 |
|
Hercules Capital |
4.6 |
12.13 |
15.51 |
1.28 |
|
Goldman Sachs |
3.4 |
12.64 |
9.51 |
0.75 |
|
Sixth Street |
3.4 |
16.98 |
18.69 |
1.10 |
|
New Mountain |
2.9 |
11.52 |
8.09 |
0.70 |
|
Apollo Global Management |
3.3 |
14.18 |
11.32 |
0.80 |
|
Oaktree Capital |
3.1 |
16.30 |
12.31 |
0.76 |
|
Barings |
2.6 |
11.09 |
8.80 |
0.79 |
|
Bain Capital |
2.7 |
17.23 |
13.13 |
0.76 |
|
SLR Capital |
2.6 |
18.26 |
15.70 |
0.86 |
|
PennantPark |
2.7 |
10.49 |
8.63 |
0.82 |
|
Churchill Asset Management |
2.1 |
17.72 |
13.96 |
0.79 |
|
Kayne Anderson |
2.3 |
16.32 |
14.25 |
0.87 |
Source: With Intelligence analysis of SEC filings AuM and NAV as of 31 December 2025. Share price as of 24 April 2026.
Given the liquidity mechanics of non-traded BDCs – where shares are repurchased at NAV – this may help to explain the spike in withdrawals in Q1.
If investors are able to cash in their shares at the stated NAV, but think the “real” value of these shares could be 20% below NAV, then they are incentivized to redeem their stake.
Alongside this modest NAV decline, weighted averaged yields in BDCs have dropped, owing to falling interest rates and general spread compression in direct lending.
The result is a modest decline in total returns (defined as NAV appreciation plus distributions) over the past few years – although returns still compare favorably with the broader leveraged loan market.
How will BDCs hold up under stress?
Other indicators suggest that there is room for BDC portfolios to absorb shocks.
Of our non-traded BDC sample, seven publish the weighted average loan-to-value of their portfolios, with an average of 41.5% – indicating significant equity cushions.
Sacher says this is a positive sign, but cautions against complacency.
“Average LTVs are unusually low, which is good for credit quality in general. But it’s important to look name by name – enterprise value coverage can evaporate very quickly if something goes wrong,” he says.
Meanwhile, John Cole Scott, founder of data provider CEF Advisors, says that BDC portfolios generally hold up well under modest stress testing.
Assuming 10% defaults in software loans and 30% recoveries, as well as “modest stress” in the broader portfolio, Scott says that the impact would be a 3-4% hit to NAVs – well below the ~20% sell-offs in public BDCs over the past year.
Elsewhere, Fitch Ratings, which rates the debt of 32 BDCs, recently published analysis saying that even under a scenario with 50% software write-downs, most BDCs would still meet their 150% minimum asset coverage ratio requirements.
However, a key issue for investors is that, despite being relatively transparent about loan-level data, BDC filings do not provide some important indicators of stress.
For example, Sacher says that around 10% of loans now have interest coverage ratios below 1.0x, which is “at the very least, a yellow flag.”
“Part of the problem for investor is that a lot of credit metrics are not easily accessible, which has contributed to the recent indiscriminate sell-off in BDCs,” he says.
In a recent whitepaper, Adams Street called for increased disclosure from BDC managers, particularly around LTVs, IC ratios, and cumulative realized losses.
| Metric | Potential warning sign | Why it matters |
|---|---|---|
|
% of total assets invested in loans with loan-to-value >60% |
10%+ |
A loan representing >60% of company enterprise value faces heightened risk of capital loss |
|
% of total assets invested in loans with interest coverage (“ICR”) <1 |
5%+ |
A loan where interest costs exceed pre-tax cash flow is a payment default risk |
|
% of total assets invested in loans with Debt/EBITDA > 6x |
20%+ |
A loan that is more than 6x pre-tax cash flow is at heightened risk of capital loss |
|
Cumulative realized loss % (since inception realized losses/NAV) |
5%+ |
Realized losses are recorded quarterly but are difficult to track over time |
|
Industry sector concentration |
20%+ |
Outsized exposure to a single sector creates capital loss concentration risk |
|
Liquidity (cash + liquid loans + undrawn debt – 20% of unfunded commitments)/net assets |
<15% |
Managers operating with low liquidity have more risk of forced asset sales |
What does this mean?
Summing up, returns and NAVs are trending downloads, while two key risk indicators – PIK and non-accruals – are trending upwards.
But, once put in their broader market context, the figures don’t look catastrophic, lending credence to private credit managers’ oft-repeated claim that Q1’s redemption frenzy was an overreaction.
Gemes, however, argues against putting too much stock in these figures, as they report on a lag. Meanwhile, he recommends looking elsewhere in corporate credit for better risk-adjusted returns.
“I’d push back on the framing. NAV marks, PIK ratios, and non-accrual rates are lagging indicators. Investors ultimately care about return of capital, not just return on capital,” he says.
“Loss-given-default in private credit is trending higher as recoveries compress, spreads have tightened well inside fair value for the embedded optionality, and on a risk-adjusted basis, senior CLO tranches and liquid high yield currently offer materially better relative value.”
Looking ahead
Ultimately, it is too early to tell how the credit cycle – particularly in software – will play out. But market participants are agreed – a turn in the cycle is coming.
“We are well overdue for a legitimate credit cycle,” says Sacher. “Post-GFC we had a decade of a benign credit environment with very little dispersions between managers. Now, we are in a much less forgiving environment.”
Over the past few years, private credit fundraising has skewed heavily towards managers with pre-2008 track records for precisely this reason – investors want reassurance that their fund managers can navigate distress.
However, Gemes argues that today’s private credit market bears little resemblance to prior default cycles, which could exacerbate losses in the event of a downturn.
“This credit cycle has no clean historical analog,” he says.
“The combination of post-ZIRP refinancing walls, covenant erosion at origination, and compressed documentation standards means even seasoned managers with strong vintage track records are likely to encounter meaningful mark-to-market and realized losses.”
