Investment funds managed by major financial firms, including KKR and Blue Owl, have experienced declines in their stock prices recently. This downturn reflects increasing investor concerns regarding the quality of loans issued by these funds. The private credit sector, which involves direct lending to businesses outside traditional banking, has grown to a substantial $2 trillion industry. However, anxieties surrounding transparency and lending practices have shaken investor confidence.
The pressure is particularly evident in investment vehicles accessible to retail investors, a demographic that private funds have actively targeted. Publicly traded business development companies (BDCs), a common avenue for accessing less liquid assets, are currently trading at an average of 78 cents per dollar of reported assets. This represents a decrease from 85 cents at the beginning of the year and approximately one dollar in early 2023, according to data from Morningstar. A discount to asset value typically suggests that investors doubt the accuracy of the asset valuations reported by fund managers.
Most of the top 20 BDCs have seen a fall in their stock prices relative to their asset values over the past year, with almost all now trading at a discount. The sector has also been affected by concerns about the potential impact of artificial intelligence on software companies, which represent a significant lending area. For example, FS KKR Capital Corp trades at 51 cents per dollar of assets, while Blue Owl Technology Finance Corp trades at 68 cents, and Prospect Capital Corporation at 44 cents, according to Raymond James data. Carlyle’s Secured Lending fund trades at 68 cents and Blackstone’s Secured Lending Fund trades at 88 cents. Ares Management, which runs a $31 billion fund, currently trades at 94 cents on the dollar.
Analysts suggest that the falling stock prices indicate growing investor pessimism. Evercore ISI analyst Glenn Schorr noted that current discounts reflect fears of a potential recession and increasing loan losses. Non-traded BDCs are also experiencing pressure, with some limiting withdrawals. Morgan Stanley recently restricted redemptions at one private credit fund after investors sought to withdraw nearly 11% of outstanding shares. BlackRock has also capped withdrawals at a major fund, and Blackstone’s flagship fund saw a surge in withdrawal requests during the first quarter. KKR is a global investment firm that offers alternative asset management as well as capital markets and insurance solutions. Blue Owl is an asset management firm providing private credit and other solutions.
