Private credit managers explore BDC sales as industry consolidation gathers pace

Private credit managers are considering selling publicly traded business development companies (BDCs), creating potential acquisition opportunities for rivals seeking to expand their AUM as the $1.8tn market faces mounting pressure, according to a report by Bloomberg.

The report cites unnamed people familiar with the matter as revealing that Ares Management, Barings, BC Partners and Churchill Asset Management have examined potential deals involving troubled funds in recent months. The talks remain at an early stage though, and may not lead to transactions.

The interest comes after a difficult period for private credit, with investors withdrawing record amounts from non-traded funds and listed vehicles suffering share-price declines. Several publicly traded BDCs, including BlackRock’s TCP Capital, WhiteHorse Finance and Investcorp Credit Management BDC, have said they are reviewing strategic options that could include a sale. Apollo Global Management’s MidCap Financial Investment has also explored options for its portfolio, according to people familiar with the matter.

BDCs have traditionally been attractive to private credit managers because they offer comparatively favourable fee structures and access to permanent capital. However, deteriorating performance and limited growth prospects have changed the equation for some firms.

When a listed BDC trades below its net asset value, it can struggle to raise new equity, restricting its ability to expand. Combined with weaker direct lending activity, this can leave managers with underperforming portfolios and fewer options for improving returns.

Potential transactions could take several forms, including mergers, the acquisition of a fund management contract or purchases of portfolio assets. Asset sales could allow a manager to transfer remaining investments into an affiliated vehicle or return capital to shareholders.

For large alternative asset managers, divesting a relatively small, struggling fund can also free up resources and management attention for larger strategic priorities, including efforts to expand into retirement savings markets.

The potential sales build on a longer history of consolidation in direct lending. Ares and Blackstone have grown major BDC platforms through acquisitions, while BC Partners has also combined listed vehicles. In March, BC Partners chief executive Ted Goldthorpe told investors that merging two of its publicly traded funds had increased scale and improved portfolio diversification.

For buyers, acquiring an existing vehicle offers a potentially faster route to scaling lending operations and increasing fee-generating assets. Transactions can also provide access to permanent capital or create liquidity options for investors in existing private credit funds.