A $12.7 billion exit wave tests nontraded BDC repurchase caps

Investors sold back $5.9 billion of nontraded BDC shares in the second quarter, bringing the first-half total to $12.7 billion, according to Robert A. Stanger & Co., as reported by InvestmentNews. At quarter-end, another $9.6 billion in tenders sat in repurchase queues.

The two figures measure different things. The $12.7 billion is money that left the funds. The $9.6 billion is money that tried to leave and could not, at least not yet. Nontraded BDCs typically cap repurchases at 5% of net asset value per quarter; when tenders exceed that, purchases are scaled back and the remainder rolls into the next queue. The cap protects the funds from being forced sellers of illiquid loans. It also means the official redemption number understates the real demand for liquidity.

The surge is a reversal for an asset class that had been white hot for several years. Nontraded BDCs offered yields above 9% to 11%, with the fees and commissions that made them a staple of wirehouse and broker-dealer distribution. Apollo, Blackstone and Blue Owl are among the leading sponsors. High-profile corporate bankruptcies last year began to spook advisor clients, and the rise of artificial intelligence added a second concern: its potential to undermine private software companies, a segment of BDC lending.

The industry is split on how to read the numbers. Mark Goldberg, founder of Alternative Investments Markets Intelligence, said advisors should focus on funds with redemption wait lists above 15% of NAV, significant software exposure and shrinking balance sheets. Kevin Gannon, CEO of Stanger, offered a calmer view. Most funds are meeting the 5% caps, he said, and he has not seen funds suspend redemptions the way one or two nontraded REITs did a couple of years ago. The funds have credit lines and loans they can sell, he added, 'but the NAVs are a little softer.'

That last remark carries the weight. The cap is a percentage of net asset value, so a softer NAV means the 5% buys back fewer dollars each quarter. A small decline in marks compounds for anyone waiting in line.

The first half left both pressures pointing the same way: more tenders, and a cap tied to a softening base. For an advisor, the queue is the number that shows how much liquidity demand really exists — and it was $9.6 billion deep when the quarter closed.