Private capital unlocked
Beyond the headlines
Every day there is a new headline about the risks to private credit, whether it's the coming "saas pocalypse," fears of systemic risk, or a fund breaching its 5% quarterly redemption limit. Indeed, negative headlines surrounding private credit have hit an all-time high according to Bloomberg News data.1
As volatility rises — and could persist — we think it's worth stepping back and focusing on the fundamentals.
How did we get here?
- The sharp drawdown in public software equities — down 15.8% year-to-date — has bled into private credit given the ~20% sector allocation, predominately among upper middle market managers.2
- KBRA currently flags 17% of software loans as high risk, but this only represents 6% of the total loan universe.3
- While AI will undoubtedly drive disruption, particularly among SaaS providers, the full impact remains difficult to assess as some concerns could be more theoretical than real. It's also worth noting that AI could prove beneficial for certain business models — particularly for some business service firms and software companies with large proprietary data sets and deeply embedded workflows.
BDC discounts and redemptions
- Several headwinds, including continued Fed rate cuts and software disruption risk, are some of the reasons why public BDCs are trading at large discounts to net asset value (NAV). Currently, the top 15 public BDCs trade at roughly a 17% discount to NAV.4
- Given these discounts, and the negative press for the asset class, investors have sought to redeem from non-traded vehicles, and in many cases, requests have come in above the 5% quarterly limit. For Q1, there were $13.9 bn in redemption requests, which resulted in $6.5 bn in unmet requests (see Exhibit 1).5
Exhibit 1: BDCs have seen elevated redemption requests around headline risk
- Despite an uptick in redemption requests, managers have either met the requests in full or chosen to hold at the 5% stated threshold, suggesting ample liquidity to satisfy investor demand.
- It is also worth noting that non-traded BDCs only represent a small portion of the overall direct lending market at 18%, suggesting that the broader private credit asset class should remain largely insulated from the redemption pressures currently in focus.6
Looking towards fundamentals for a clearer picture
- Despite the headlines, current sentiment appears divorced from reality. Various credit metrics remain solid and largely in line with levels seen throughout 2025. Non-accruals, PIK, and interest coverage ratios have remained stable over the last few quarters (see Exhibit 2) – which may surprise casual observers given all the headlines and redemption activity.
Exhibit 2: There has been no meaningful deterioration in credit fundamentals
- Systemic risk is another area of focus for investors. Despite the concerns, direct lending only represents 2.5% of total bank lending and “back leverage” – banks lending directly to private credit firms – is just 1% of total bank assets.7
- Signs of stress also do not appear to be forming as only 6.1% of loans marked below 90, which is consistent with levels over the last few years.8
Bottom line
- While the headlines continue to pile up, fundamentals tell a different story. Credit metrics remain stable, systemic risk concerns appear overstated, and we think the core middle market continues to offer structural advantages. For investors focused on durable income and capital preservation, we think compelling opportunities are presenting themselves in this environment.
Footnotes:
1. Bloomberg News, as of Apr. 16, 2026. 2. Bloomberg, as of Apr. 20, 2026. 3. KBRA, as of Mar. 27, 2026. 4. Bloomberg as of Apt. 22, 2026. Universe of top 15 publicly traded BDCs includes the largest publicly traded BDCs by market capitalization. 5. Stanger Market Pulse as of Mar. 31, 2026. 6. S&P Global, as of Mar. 31, 2026. 7. Federal Reserve, as of Dec. 31, 2025. 8. KBRA, as of Mar. 23, 2026.
