Investors pull $12.7 billion from nontraded BDCs in the first half of the year

Customers and clients of financial advisors sold back or redeemed $5.9 billion of shares to nontraded business development companies in the second quarter, according to alternative fund tracker Robert A. Stanger & Co. Inc., raising the total of investor funds sold back to companies to $12.7 billion this year. 

With advisors’ clients in retreat, it’s a staggering turnaround for an asset class that had been white hot for the past several years. Nontraded BDCs offered yields to investors of more than 9% to 11% - as well as lucrative fees for fund managers and commissions to advisors who sold them.

Meanwhile, many investors who sought to redeem their nontraded BDC shares this year were not able to sell back to the fund managers right away; such funds typically have caps of 5% of net asset value on redemptions per quarter. 

That means investors are waiting in line to sell back shares totaling $9.6 billion, according to Stanger.

Leading managers who have sold nontraded BDCs, typically far more expensive than plain vanilla mutual funds or exchange-traded funds, to retail investors through wirehouse and other broker-dealers include the heavyweights of private investment on Wall Street: Apollo, Blackstone, Blue Owl and others.

Although funds are buying back clients’ shares, there are reasons to be wary, according to one executive.

“Financial advisors should be focused on the funds and managers with current redemption cues or wait lists of over 15% of NAV, as well as those funds with significant exposure to software companies and those that are shrinking their balance sheets,” said Mark Goldberg, a former senior executive in the brokerage and alternative investment industries who is the founder of the website Alternative Investments Markets Intelligence.

“The BDC funds are meeting redemptions up to the 5% caps that most have,” said Kevin Gannon, CEO with Stanger. “We haven’t seen funds suspend redemptions like one or two of the nontraded REITs did a couple years ago.”

“They have credit lines and assets – the loans – that they can sell,” he added. “But the NAVs are a little softer.”

Last year, high-profile corporate bankruptcies began to spook financial advisors’ clients who plowed cash into the high-yield nontraded BDCs; that resulted in this year’s surge in clients cashing out of semi-liquid funds.

Another contributing factor to wariness about BDCs was the surge in the development of artificial intelligence and its potential to undermine private software companies, a sector that is a big borrower of money from BDCs.

BDCs lend money to private companies - typically small- and mid-sized companies that might have trouble getting loans from banks.

Private credit funds like nontraded BDCs sold through broker-dealers emerged after the 2008 credit crisis, when banks were required to raise standards regarding companies they were lending money to.

Along with clients cashing out, fresh capital for nontraded BDCs is drying up, according to Stanger, with the funds raising just $2 billion from clients during the three months that ended in June.

That’s down 82% from the same quarter in 2025 and the lowest quarterly total since the end of 2020, before Blackstone Private Credit Fund and Blue Owl Credit Income Corp. began raising capital, according to Stanger.