Cox Capital Partners came up short in its most recent bid to acquire shares of five business-development companies at steep discounts, but the secondary buyer intends to stick with its strategy.

Investors in certain BDCs showed they were unwilling to take double-digit hits on their investments in these nontraded lenders, with few accepting offers from Cox. The firm used roughly $5 million out of $90 million available to acquire shares across the affected BDCs.

However, the New York firm plans another offering as soon as possible, Chief Executive John Cox said Monday.

"I don't think the discounts were too steep," Cox said of the scant uptake of the just-ended offer. "People are getting familiar with the idea of valuing securities at a price that's not [net asset value]," he said.

In addition to investors becoming increasingly familiar with navigating the valuation of vehicles that feature liquidity constraints and prorated redemptions, the firm executed this transaction within its shortest tender offer window ever.

The firm's confidence in the strategy has been bolstered by its fundraising efforts. Cox is raising a fund to make more discounted secondary deals targeting investors in BDCs and interval funds. The firm has a $150 million target for the current campaign and expects to wrap it up by year-end.

Despite the lackluster performance of its latest offers, Cox viewed it as considerably more successful than a tender earlier this year targeting Blue Owl Capital BDCs. The firm and hedge-fund manager Saba Capital Management in February offered to buy shares of Blue Owl Capital Corp. II at discounts of as much as 35% and wound up with less than 1% of the fund's shares, committing less than $1 million.

In the just-ended deal, Cox offered to purchase up to $90 million of shares and assets at discounts to NAV, targeting five BDCs overseen by Blue Owl, Ares Management, Apollo Global Management and BlackRock's HPS Investment Partners. The firm aimed to capitalize on constrained investors looking for exit alternatives with discounts averaging about 26%.

Future secondary offers will feature NAV discounts based on fine-tuning of investment models for each fund, Cox said. Some spreads are likely to tighten, while others may widen.

Investors in credit-focused vehicles such as BDCs might be more receptive. Credit-scoring company Fitch Ratings recently said its U.S. Private Credit Default Rate rose to 6.1% for the 12-month period ending in July from 6.0% in the period through June, showing added stress in the sector.

Offers to cash out BDC investors highlighted a deeper structural tension, as recent industry data showed BDC liquidity challenges might be spreading.

Inflows to private-credit vehicles declined at the start of the year, a trend that continued into the second quarter, according to Fitch data. Capital flows showed signs of a slight reversal in June, with some BDCs reporting fundraising increases from previous months. However, this occurred before the Federal Reserve signaled it could take new steps to rein in inflation.

Fed Chairman Kevin Warsh on Friday suggested he would consider raising key interest rates in the near future if inflation stays above its target range. A possible rate increase would raise borrowing costs for corporate debtors, straining their cash flows. This, in turn, might drive up redemption requests from BDC investors.