Private credit funds slide as investors sell out

By Isla Binnie, Tommy Reggiori Wilkes and Iain Withers

NEW YORK/LONDON, March 12 (Reuters) - Investment funds run by big financial firms such as KKR KKR.N and Blue Owl OWL.N have seen their stock prices slide in recent weeks as investors question the quality of the loans the funds have made.

Private credit - lending directly to businesses outside the banking system - has ballooned into a $2 trillion industry. But concerns over transparency and lending discipline have rattled confidence.

The pressure is particularly visible in vehicles open to retail investors - a group private funds have targeted aggressively.

WHAT THE NUMBERS SHOW

Publicly traded business development companies (BDC) - a common way Americans access harder-to-trade assets — trade at an average of 78 cents for every dollar of reported assets. That's down from 85 cents at the start of this year and about a dollar in early 2025, according to research firm Morningstar.

A discount to asset value signals that investors doubt the assets are worth what the managers estimate.

BIGGEST FUNDS FALL

Most of the 20 biggest BDCs have seen their stock prices fall relative to asset values over the past year, and nearly all now trade at discounts. The sector has also been hit by worries about how artificial intelligence could affect software companies, a major area of lending.

Examples include: FS KKR Capital Corp FSK at 51 cents per dollar of assets, Blue Owl Technology Finance Corp OTF.N at 68 cents, and Prospect Capital Corporation PSEC.O at 44 cents, according to Raymond James data published on Monday.

Carlyle's Secured Lending fund CGBD.O trades at 68 cents and Blackstone's Secured Lending Fund BXSL.N at 88 cents. Even the biggest BDC - a $31 billion fund run by Ares Management - trades at 94 cents on the dollar.

The companies declined to comment or did not respond.

Larger managers say their portfolios remain stable despite market volatility, though some have acknowledged strains. Executives at KKR and Blackstone funds said in February that some borrowers are struggling.

Morningstar's Jack Shannon said investors appear to believe the sector's "best days are behind it" after rapid growth "forced firms to compete" by offering higher returns or easing lending protections.

WHY THIS MATTERS

Falling stock prices signal rising pessimism. Evercore ISI analyst Glenn Schorr said the discounts now reflect fears of a recession and higher loan losses.

Non-traded BDCs, which let investors redeem a portion of shares each quarter, are also under pressure, with several limiting withdrawals.

On Wednesday, Morgan Stanley said it had limited redemptions at one private credit fund after investors sought to pull out almost 11% of outstanding shares. BlackRock BLK.N recently capped withdrawals at a major fund, while Blackstone's flagship fund saw a surge in withdrawal requests in the first quarter.

Blackstone President Jon Gray said that large institutional investors such as pension funds - which typically commit money for longer periods - continue to put money into private credit.

JPMorgan has cut the value of some private credit loans after assessing the impact of volatility around software companies, sources told Reuters this week.

GROWING ASSETS UNDER MANAGEMENT

Private credit continues to expand, with forecasts pointing to further growth. Law firm Eversheds Sutherland estimates around 50 traded BDCs hold more than $150 billion in assets between them, and more than 100 non-traded BDCs hold another $270 billion.