Regardless of the metric used, the troubled private credit funds represent only a minor portion of the asset portfolios of major investment firms such as KKR, BlackRock, and Apollo Global Management.

However, as this $1.8 trillion market faces turbulence leading into 2026, these funds, being the most publicly visible investment vehicles of the related companies, have inflicted significant damage to corporate reputations as investors begin scrutinizing the industry's broader issues. Each asset manager is now taking steps to address these problems, though the tools they employ vary.

According to informed sources, the persistent issues with the publicly traded fund FS KKR Capital Corp. (ticker: FSK), a $12.3 billion fund under the $758 billion AUM KKR, have drawn attention at the highest levels. Executives have held in-depth discussions on value creation and, after assessing sufficient market demand, finalized a $300 million share buyback plan with the FS KKR board. Investors had previously lobbied the company to initiate buybacks. The source requested anonymity due to the private nature of the discussions.

BlackRock TCP Capital Corp. (ticker: TCPC), a $1.5 billion fund under the world's largest asset manager, BlackRock, has been a persistent headache over the past year. The fund's troubles predate BlackRock's $12 billion acquisition of the private credit boutique HPS Investment Partners. According to sources, BlackRock has integrated more HPS executives into TCP's investment committee, granting them a pivotal role in screening new loans to enhance performance.

Apollo Global Management, with approximately $1 trillion in assets, is reportedly seeking a buyer for its $3 billion fund, MidCap Financial Investment Corp. (ticker: MFIC). While this fund has avoided the steep discount trading seen with KKR and BlackRock's funds, it still faces losses and declining net asset value. Furthermore, its focus on middle-market loans appears narrow compared to the $40 trillion, predominantly investment-grade private credit market envisioned by Apollo CEO Marc Rowan.

These actions reflect the challenges facing Business Development Companies (BDCs)—entities that trade on exchanges like stocks, contrasting sharply with unlisted funds facing unprecedented redemption pressures. Listed funds like FSK, TCPC, and MFIC have fixed capital pools; investors wishing to exit can sell their holdings at market prices.

Recently, prices for these publicly traded funds have plunged to multi-year lows, significantly below the book value of their loan assets, signaling more pain ahead for the funds and potentially their parent asset managers.

Haley Schaffer, founder of wealth management firm Waypoint West, noted, "BDCs typically represent only low single-digit percentages of these asset managers' total AUM, almost negligible compared to their private fund scale."

"But they are these firms' most visible products because they are publicly traded and often packaged for retail investors," she said. "This creates an asymmetric reputational risk."

The private credit sector has been heavily impacted this year due to market concerns over underwriting standards, loan quality, and concentrated exposure to software borrowers potentially disrupted by AI advancements. This sell-off has intensified a bifurcation within the industry, with FSK and TCPC trading at nearly half their net asset values.

While unlisted BDCs can simply impose redemption gates to weather market turmoil, publicly traded BDCs have more limited direct response options. Using capital for share buybacks could constrain a fund's ability to make new investments, potentially further hampering performance.

Larry Herman, Managing Director at Raymond James, suggested that a better option might be "to strengthen the fund's balance sheet through an external manager investing at net asset value." He explained that investing at this level avoids diluting the fund's value while demonstrating confidence in the broader private credit strategy.

This is the strategy KKR and its partner Future Standard ultimately adopted for FSK. In Q1, FSK's net asset value dropped 9.9%, with troubled loans continuing to accumulate.

According to a Monday statement, alongside the $300 million share buyback plan, KKR will also invest $150 million in preferred shares and initiate a tender offer for $150 million of FSK shares at $11 per share. Additionally, the firm agreed to forgo its incentive fees for the next four quarters.

FSK executives stated on an analyst call that the fund would scale back new investments during the buyback period to manage leverage and maintain liquidity. Asset sales are also under consideration.

For BlackRock's TCP, the fund recorded total asset write-downs of $35 million in the quarter ending March 31. The company is reducing leverage and portfolio concentration. It announced a significant 19% net asset value write-down in January, followed by a further 5% decline indicated last week.

Executives highlighted the fund's restructured leadership team, with three of TCP's seven-member investment committee now from HPS. This includes Vikas Keswani, head of direct lending, who joined HPS from BlackRock in 2010 and has integrated some of the fund's investment decisions with BlackRock's roughly $400 billion credit investing business.

TCP's current leadership still primarily hails from Tennenbaum Capital Partners, a much smaller credit firm acquired by BlackRock in 2018. However, the fund now falls under the private financing business managed by the HPS team.

TCP CEO Phil Tseng (a former Tennenbaum partner) told analysts this month that the fund "benefits from stronger deal sourcing and loan origination capabilities, broader investment expertise and resources, and the ability to participate in larger transactions."

Regarding Apollo's fund, loans on non-accrual status (typically indicating borrower payment defaults) rose to approximately $167 million on an amortized cost basis in the March quarter, up from $48.5 million a year earlier.

Sources indicate that a potential buyer for MFIC is likely another BDC.

Chelsea Richardson, Senior Director at Fitch Ratings, pointed out that because portfolios are valued quarterly and managers are unlikely to sell below these valuations, it is difficult for buyers and sellers to agree on BDC prices.

"We do not anticipate a significant increase in managers seeking to sell BDCs," she said. However, when a BDC is small or no longer core to a firm's strategy, "if asset performance continues to lag, managers might be more inclined to sell them rather than continue dedicating resources to manage these assets."