Andrew Bary

Why pay full price for an investment when a similar one is available at a 20%-plus discount?

That unusual situation is playing out now in the $400 billion market for business development companies that invest in private credit, where a big pricing gap has opened between public and private BDCs targeted at retail investors.

Amid growing investor concerns about the health of the $1 trillion private credit market, the shares of nearly 50 public BDCs generally have fallen sharply over the past year and recently traded at an average discount of more than 20% to their net asset values, according to Raymond James research. Nearly all the public BDCs now trade at a discount to their NAVs.

The public funds can trade at a premium or discount to NAV depending on investor demand.

The private BDCs allow investors to buy and sell shares at their net asset values. They offer limited liquidity with most permitting redemptions equal to 5% of the BDC's net assets each quarter.

Private credit lending involves high-rate debt issued to private companies that often carry yields of around 10%.

The cheaply priced public BDCs have created a problem for the private BDCs, which saw higher redemptions in the fourth quarter. The average redemption among nine leading private funds was close to 5% of net asset value, according to Moody's. Some BDCs exceeded that 5% cap and met the full redemption requests.

The private funds also saw sizable inflows in the fourth quarter that in the case of Blackstone Private Credit Fund (Bcred), the largest private fund, exceeded redemptions.

There is incentive now for new investment to go into the cheaply priced public BDCs and out of the private BDCs. Investors in private BDCs can redeem at 100 cents on the dollar and buy similar BDCs in the public markets at 75 to 80 cents on the dollar.

This could lead to higher redemption requests among private BDC investors in the current quarter.

Reflecting the depressed pricing in the public markets, the Van Eck BDC Income ETF that owns leading public BDCs is down 7% this year to around $13.15, trades near a 52-week low and yields 12%.

Most of the major private-credit managers, including Blackstone, Blue Owl, Ares Management, Oaktree and Goldman Sachs, run both private and public BDCs that can have similar industry sector allocations and some of the same loans.

There tends to be lower leverage at the private funds, which gives them more wherewithal to meet redemptions. The public BDCs don't allow investors to redeem their shares.

Barron's wrote earlier this month that investors should favor the cheaply priced private funds if they want exposure to private credit.

The gap between public and private BDC pricing is widespread.

A large Blue Owl public BDC, Blue Owl Capital Corp. (Ticker. OBDC), finished Tuesday at $11.68 a share, or a roughly 20% discount to its year-end NAV. The firm's largest private BDC is the Blue Owl Credit Income with $19 billion of net assets. The two have similar sector allocations.

A Blackstone public BDC, Blackstone Secured Lending $(BXSL)$, ended Tuesday at $23.84 a share, a discount of close to 10% relative to its third-quarter 2025 NAV. The Blackstone BDC reports fourth-quarter results Wednesday.

Blackstone's private BDC, Blackstone Private Credit (Bcred), is the industry's largest with about $47 billion in net assets.

Julian Klymochko, the CEO of Accelerate, a Canadian firm focused on alternative investments, told Barron's earlier this month that he favored some discounted public BDCs but would steer clear of the private ones.

The private-credit market has become a source of concern for investors because of isolated credit problems, the sharp decline in software stocks (software is a major borrower in private-credit markets) and Blue Owl Capital's recent decision to sell $1.4 billion of private credit assets from three of its funds.

Blue Owl will use part of the proceeds to return $600 million to shareholders in one of its private funds as part of a plan what are expected to be regular distributions, while ending quarterly redemptions for that fund.

"Perpetual non-traded BDC (PNT BDC) redemption rates rose in last year's fourth quarter, largely reflecting investor concerns around asset quality, lower returns from net investment income and valuations," Moody's wrote in a report Tuesday. "The equity market's strong reaction and the subsequent scrutiny of Blue Owl's announcement intensifies the spotlight on liquidity risk in semi-liquid private credit funds."

The private BDCs often are sold to investors by private wealth managers who may like relatively steady asset values that aren't subject to sentiment swings that affect the share prices of public BDCs. Private-credit managers are hoping that this investor base will prove sticky and that money will continue to flow into private vehicles.

But it may be tougher for wealth manager to recommend the private BDCs when cheaper alternatives are available in public markets.

Moody's wrote Tuesday that private-credit managers may need to "revisit liquidity terms in semi-liquid fund structures" and potentially hold more liquid, lower-yielding investments.

Barron's wrote recently that the private-credit industry may have erred in setting up parallel public and private BDCs because of the risk that the public ones could trade cheaply and siphon money from the private ones.

The current quarter shapes up as a key test of the private BDCs and the stickiness of their assets.

Write to Andrew Bary at andrew.bary@barrons.com

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February 24, 2026 16:36 ET (21:36 GMT)

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