⏎ Words Summary from News
On paper, it seems like a no-brainer trade: Cash out of one private credit fund at 100% of net asset value and plow the money back into a similar vehicle that’s trading at a substantially discounted price. Like many things in the $1.8 trillion direct lending market, that kind of arbitrage can be trickier and more time-consuming to pull off than it first appears, especially for retail investors. Still, as an avalanche of redemption requests from private credit funds stretches into another quarter, some advisers are urging their clients to make the move. The strategy hinges on the structural differences between non-traded business development companies, and BDCs that trade like stocks on exchanges. Non-listed BDCs can limit withdrawals but when investors do get cash out, they get their money back at the full net asset value of the fund. The advice still holds merit for some investors being blocked from withdrawing their cash by asset managers including Apollo Global Management Inc., Blackstone Inc. and BlackRock Inc., which all enforced limits on redemptions from their funds. In practice, it’s not as simple. hired former HSBC Holdings Plc banker Jasper Reiser, part of a series of moves as the bank bolsters its private capital advisory and solutions teamBlackstone Private Credit Fund’s COO Katherine Rubenstein departed her role to pursue other opportunitiesDid You Miss? Private Credit Opacity Fuels Mistrust, French Watchdog WarnsInvestor Who Scored 900% Win in 2008 Has New Big Short BetMorgan Stanley Caps Private Credit Fund After 11.6% Exit RequestApollo Caps Private Credit Fund After 17% Request to ExitPrivate Credit Tempest Gilds Real Estate’s Appeal, Pretium SaysAustralia Probes Private Credit Lenders, Warns on ValuationsOaktree Private Credit Fund Redemptions Drop Below Key 5% Limit
Key Takeaways
- Like many things in the $1.8 trillion direct lending market, that kind of arbitrage can be trickier and more time-consuming to pull off than it first appears, especially for retail investors.
- Non-listed BDCs can limit withdrawals but when investors do get cash out, they get their money back at the full net asset value of the fund.
- “When the same credit manager is running a non-traded BDC at its net asset value and a listed sibling fund at a 24% to 27% discount, that’s not a philosophical debate, that’s a math problem,” John Cole Scott, president and chief investment officer at Virginia-based CEF Advisors, said in an interview.
- Discounted Investors who are patient enough to sell the non-traded vehicle and rotate into a listed one “are effectively buying the same portfolio at a meaningful discount,” he said.
- The argument is gaining support as investors ramp up requests to exit the private funds in the second quarter, even after the BDCs handed back more money than they raised in the prior period.
Insights & Analysis
- Non-listed BDCs can limit withdrawals but when investors do get cash out, they get their money back at the full net asset value of the fund.
- In contrast, listed BDC prices move largely in real time, and right now they’re trading at a median discount to NAV of about 25%, arguably in anticipation of the type of pressure and markdowns that are starting to hit their semi-liquid peers.