From boom to bust: BDC sales tank in the midst of market turmoil for private credit

Financial advisors’ sales of business development companies, high-yield funds that invest in private credit, have tanked in the past couple of months as the private loan market faces questions about lending to software companies and high-profile bankruptcies in 2025. 

According to alternative investments fund tracker Robert A. Stanger & Co. Inc., sales of nontraded BDCs in January were $3.2 billion, a decline of close to 40 percent compared to the previous month and down just under 49 percent from their all-time monthly high of $6.2 billion raised in March 2025. 

Meanwhile, some listed BDCs have started to cut their dividends, a worrisome sign for investors who typically buy BDCs for their high yields.

MidCap Financial Investment Corp., which is affiliated with Apollo, on Friday said it was reducing its quarterly dividend to 31 cents per share, an 18 percent decline from its previous amount of 38 cents per share. FS KKR Capital Corp. on Thursday slashed its quarterly dividend to 45 cents per share, or almost 30 percent from its previous amount of 64 cents.

One industry executive who runs a fund that buys nontraded BDCs and interval funds at a discount from clients said inquiries about the secondary market were up.

“We are seeing more volume BDCs per request, including RIAs trying to rebalance,” said John Cox, CEO of Cox Capital Partners. “The ticket sizes are larger. More than a decade ago, BDCs were just $1 billion to $2 billion in assets. Today, they can be significantly larger. It’s the beginning of a substantial correction.”  

Traded and nontraded BDCs are funds that act like mini-banks and finance the loans of mid-sized private companies. They have exploded in popularity since the 2008 credit crisis, with the restriction placed on banks opening up the market.

But investors have woken up to worries about BDCs' exposure to loans to private software companies, which are under pressure because of the potential for artificial intelligence to wipe them off the map.

And recent high-profile bankruptcies have also spooked financial advisors’ clients, resulting in a surge in clients cashing out of nontraded BDCs by selling back billions of dollars of shares to the investment funds in the final months of last year. 

The latest cause for concern has been a series of recent moves by prominent BDC manager Blue Owl Capital Inc., which trades with the ticker OWL.  

It’s been a boom to bust time for financial advisors and broker-dealers selling BDCs.

“Despite a record-breaking $63 billion of BDC capital formation in 2025, we saw signs of a new market dynamic taking shape in Q4 – monthly sales slowed, redemptions accelerated, and total returns began to soften,” said Kevin Gannon, chair and CEO of Stanger, in a statement.

“January data suggests this trend has continued into the new year, as the BDC sector seemingly begins to navigate a familiar path seen in non-traded REITs during the 2022 to 2023 downturn,” he added. “We are now forecasting an approximately 40 percent year-over-year decline in BDC capital formation for 2026, similar to the 65 percent year-over-year dip experienced by REITs from 2022 to 2023.”