Private Credit Investors Sour on Funds as Rate Cuts Hurt Payouts

Business development companies are generally seen as a proxy for the $1.7 trillion private credit market. Now, their struggles are indicating a weakening industry.
Investors are losing interest in BDCs, which hold private debt investments, in light of growing concern around credit quality and the Federal Reserve’s rate cut last month. Because most direct loans are floating-rate, the rate cut has led some managers to scale back distributions as their borrowers will pay less on their debt. Competition from banks is also leading firms to tighten pricing to win borrowers, bringing yields down further.