By Jonathan Weil
Many publicly traded private-credit funds say their assets are worth more than the market is willing to pay. If they really believe that, they should be aggressively buying back their shares.
First-quarter reports from the biggest publicly registered credit funds are due soon. For those listed on public exchanges, share buybacks will be a crucial metric for gauging management's conviction in their own valuations.
The private-credit world has been under pressure for months. Such credit funds lend largely to middle-market companies, and lots of them have lent heavily to software makers that face potential disruption from new artificial-intelligence tools.
Much of the attention recently has been on nontraded business development companies. Many of these funds have been flooded with redemption requests by investors looking to cash in their shares, often because they suspect the funds' official net asset values are inflated. As a result, many of the nontraded funds have been forced to gate their investors, invoking longstanding limits that cap quarterly redemptions at 5% of shares outstanding.
By contrast, publicly traded BDCs offer investors the chance to buy and sell shares on the stock market whenever they want. They are structured much like closed-end mutual funds and are required to mark their assets each quarter at fair market value. When a BDC trades at a deep discount to its official NAV, the most direct way to signal that the official marks are reliable is for the fund to repurchase its own stock on the open market.
Some BDCs have already signaled an intent to do so. Publicly traded private-credit funds managed by Blue Owl and Blackstone, for example, recently have announced new buyback authorizations.
But an announcement alone doesn't obligate a fund to follow through with repurchases. Even if a fund does buy back shares, it doesn't necessarily make the stock a buy for everyday investors. However, if the fund is trading at a deep discount, the absence of buybacks should be viewed as a red flag that strongly suggests the NAV is overstated. If the fund won't buy its own stock at a big discount, investors probably shouldn't either.
Blue Owl Technology Finance, known as OTF, has a $5.4 billion stock-market value and trades for 67% of its official NAV. In February it announced a new program authorizing as much as $300 million in share buybacks over 18 months. The fund is scheduled to report first-quarter results on May 6. If it didn't buy back any stock last quarter it will have a lot of explaining to do. Last year OTF spent $73 million on share buybacks, when the discount was narrower.
Likewise, Blue Owl Capital Corp., known as OBDC, has a $5.7 billion market value and trades for 78% of its year-end NAV. It, too, announced a $300 million repurchase program in February. Last year it spent $148 million on buybacks.
Blackstone Secured Lending Fund, which did not repurchase any shares last year, announced a new plan in February for up to $250 million in stock buybacks. It has a $5.6 billion market value and trades for 90% of NAV after rebounding from its recent lows.
One fund that stands out for its lack of buybacks is FS KKR Capital, which has a $3.1 billion market value and trades for 53% of its official Dec. 31 NAV. The fund, managed by Future Standard and private-equity giant KKR, doesn't have an active stock-buyback program and hasn't repurchased shares through one since 2023.
In fact, FS KKR is seeking shareholder approval at its June annual meeting to sell shares below NAV "in order to provide flexibility for future sales." The fund's investors approved such a request last year, when the discount to NAV was smaller. But even then, shareholders cast 20% of their votes against the proposal. This year's vote could be more contentious. The approval would last 12 months, and such proposals have appeared in the fund's annual proxy filings for more than a decade.
FS KKR, like other public BDCs, is required by federal statute to maintain a minimum asset coverage ratio of 150%. In general, this means it can borrow $200 for every $100 of net assets it holds. If the fund wrote down its assets to align with the values implied by its stock price, it would likely fall below that 150% floor, which could trigger a freeze on distributions to shareholders and force the fund to sell assets and repay debt. While FS KKR reported a 177% coverage ratio as of Dec. 31, the stock price's deep discount to NAV suggests the fund might already be uncomfortably close to that regulatory cutoff.
The biggest publicly traded BDC, Ares Capital Corp., also didn't buy back any shares last year. In February, it extended its existing $1 billion buyback authorization through early 2027. It has a $13.6 billion market value and trades for 95% of NAV, an improvement from 88% late last month.
BDC managers surely would like for investors to assume that the discounts mean the funds are a bargain. Managers who share that view should back it up with the funds' own cash.
Write to Jonathan Weil at jonathan.weil@wsj.com
(END) Dow Jones Newswires
April 22, 2026 05:30 ET (09:30 GMT)
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