The private‑credit market has hit a rough patch in recent months, with weakening investor sentiment and rising redemption requests at non‑traded business development companies (BDCs) signaling mounting stress.
Michael Lebowitz, a portfolio manager at RIA Advisors, believes that the "chaos and bad press" surrounding private credit has dragged down both strong and weak players in the sector.
"The poor sentiment toward private credit funds has dragged down many high-quality BDCs, as well as weaker ones. The chaos and bad press surrounding private credit funds are not reasons to avoid BDCs. In fact, we think it's a reason to consider it," Lebowitz wrote on X.
According to a recent Bank of America report as cited by PitchBook, redemption activity in BDCs will reach its highest point in the second quarter of 2026, following record levels seen in the first quarter.
The increase will continue into the second quarter as "advisors request more than needed in reaction to the prorations," which capped withdrawals at roughly 5% across most BDCs. As a result, some investors are expected to attempt to recover unmet redemption requests from the prior quarter, the report stated.
Analysts expect the market will continue to see elevated redemption pressure into Q3, before easing in Q4. However, redemption levels are still projected to remain above the typical 5% cap for all tracked BDCs throughout the year.
The analysts also said they expect retail alternative-fund inflows to pick up from April's low point, which they say was due to "private credit misinformation and the Iran conflict."
Projected Fund Expectations In Q2
The report outlined projected Q2 redemption levels across several major private credit funds:
- Apollo Debt Solutions: saw redemption of 11.2% in Q1, expected redemptions would rise to 15% in Q2
- Ares Strategic Income Fund: saw redemptions of 11.6% in Q1, expected redemptions are projected at 14% in Q2
- Blackstone BCRED: redemptions are expected to reach 12% in Q2, up from 7.9% in Q1. The report stated that BCRED recorded the lowest Q1 redemption rate among peers and was the only major private BDC that did not restrict withdrawals, though the analysts expect it to implement limits in Q2
- HPS HLEND: forecast to increase to 13% in Q2, from 9.3% in Q1
- For Blue Owls two non-traded BDCs: Blue Owl OCIC is projected at 28.5% in Q2, up from 21.9% and Blue Owl OTIC is expected to rise to 52.9% in Q2, compared with 40.7% in Q1
Despite this backdrop, the BofA analysts maintained buy ratings on Apollo Global (NYSE:APO), Ares Management (NYSE:ARES), Blackstone (NYSE:BX), KKR & Co. (NYSE:KKR), and Blue Owl Capital (NYSE:OWL), citing their long-running buildout in the private-wealth distribution channel.
The report also notes that private credit sales declined by more than 50% month-over-month across most funds in April, which analysts partially attribute to heightened media scrutiny.
Separately, it was announced earlier this year that BofA has pledged $25 billion of its own funds toward private-credit investments, building on its current direct-lending activities.
The bank intends to source these transactions through its capital-markets unit, a division within its investment-banking arm.
Other banks have committed capital toward the private credit sector.
In September, Citigroup entered into a strategic partnership with Apollo Global Management to launch a $25 billion private credit and direct lending program. That same month, Wells Fargo announced its partnership with Centerbridge, which was focused on direct lending to non-sponsor North American middle market companies. Overland was targeting a minimum of $5 billion in investible capital, including $2.5 billion in equity commitments for the strategy.
Image: AI image created using ChatGPT
Login to comment