Credit woes

Business Development Companies, commonly known as BDCs, are the publicly traded proxies of the private credit funds. One of the big ones, Blue Owl inc, has halted redemptions on one of its private credit funds OBDC II, with 13% of its portfolio in loans to the software sector, which is proned for disruption by AI, and fundamentals have weakened recently. In the chart below you case Blue owl BDC vs the S&P500. You can see the 52% drawdown it has accumulated. Of course this could be an isolated case, but it looks like it will be another case of cockroaches. Most of the BDCs are also experiencing drawdowns, perhaps not as severe as Blue Owl, but strong nonetheless. Which begs the question: are we starting an episode of credit contagion? The market is now going to differentiate between the GPs that have been prudent and the ones that have been more aggressive. You can already see that in the performance of their BDCs. The question is if their common shareholders/investors, pension plans and endowments, will make the decision to sell indiscriminately. If that’s the case, opportunities will arise, but first we will see pain.

Want to know more? You can register for free at Fund@mental.

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation