By Andrew Bary
Fresh artificial intelligence fears are hammering the stocks of business development companies that make high-rate, private-credit loans to software and other technology companies. They are also hitting alternative investment managers with exposure to private credit.
The VanEck BDC Income exchange-traded fund that holds shares of leading BDCs finished Tuesday down 2.4% to $13.44, leaving the ETF with a year-to-date loss of 5% and 25% below its high set nearly a year ago. It yields 12%
Most BDCs are trading at large discounts to third-quarter net asset values, indicating investor worries about eroding credit quality and the accuracy of loan pricing. Even before the latest selloff, the median BDC tracked by Raymond James was trading at a nearly 20% discount to its third-quarter net asset value.
Alternative investment managers that plowed into private credit are getting hit as investors worry about more redemptions from semiliquid private funds and slowing asset growth in the formerly hot sector.
Blackstone, which runs Blackstone Private Credit, the largest private credit fund, ended Tuesday down 5.2% to $133.93. Apollo Global Management lost 5% to $126.48 and KKR dropped 9.7% to $103.26. These three stocks are closer to 52-week lows than their highs despite the S&P 500 being close to a recent record.
Blue Owl Capital, which has the most exposure to private credit among the leading alt managers, dropped 10.5% to $12.05 after hitting a new 52-week low earlier in the session. Blue Owl is down about 50% from its record high set a year ago.
One impetus for the selloff is the reported move by Anthropic, one of the leading AI companies, to offer a legal plug-in for its Claude AI tool. That move reinforced concerns that AI will prove more disruptive to software than the industry has been insisting.
The iShares Expanded Tech Software Sector ETF fell 4.6% to $85.39 and is down around 20% so far this year.
Many private credit managers have outsize allocation to the technology sector, with software with technology accounting for 25% of BDC holdings, according to a recent report from UBS analysts led by Matthew Mish.
The technology sector has enticed them because of high yields -- often above 10% -- and high asset coverage. But tech and software oriented loans tend to have less traditional coverage -- earnings -- and have more pay-in-kind structures than private credit loans to other sectors. So-called PIK loans are riskier than cash-pay loans since investors are paid with more debt. PIK loans generally are made to earnings-poor companies that lenders hope will become more profitable.
Major BDCs will start reporting fourth-quarter results Wednesday including the largest public company, Ares Capital. Investors will be focused on any erosion of credit quality in the sector. Expect the managers to seek to reassure investors and emphasize the high overall quality of their portfolio.
Write to Andrew Bary at andrew.bary@barrons.com
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February 03, 2026 16:38 ET (21:38 GMT)
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