Fitch: 13 of 15 non-traded BDCs average 9.8% Q3 redemptions

Redemption requests at 13 of the 15 perpetual non-traded business development companies averaged 9.8% of shares in the third quarter, down from 10.3% in the second, according to a Fitch Ratings report that InvestmentNews covered on Oct. 13.

The funds cap repurchases at 5% a quarter and do not trade on an exchange. Selling shares back to the manager is almost the only way an advisor's client gets liquidity, InvestmentNews reported. At the cap, an average quarter's 9.8% of requests would take about two quarters to work through, before any new requests arrive.

For a client, the 5% cap is the term that sets the date cash arrives, and the queue sets how far off it is. Blue Owl Technology Income Corp. faced client redemption requests of 39%, InvestmentNews reported, which at a 5% quarterly repurchase rate implies about eight quarters of buying back shares before new requests are counted.

Redemptions sit at highs this year while new sales have dropped, and large managers, Blue Owl among them, have faced intense scrutiny and a struggle to raise fresh capital, according to InvestmentNews. The funds raise capital and buy loans of private companies to generate yields and interest, and the category paid managers fees and the advisors who sold the funds commissions, InvestmentNews reported. It described the shift as a sharp reversal for an asset class that had drawn heavy demand for several years.

Mark Goldberg, a former broker-dealer chief who founded Alternative Investments Market Intelligence, told InvestmentNews that much of the selling comes from investors who were never in the queue. "There's more demand by investors every quarter to redeem these shares that has nothing to do with the backlog demand, or those clients already waiting in line to sell," he said.

Goldberg put the historical pace for funds close to five years old at about 3% of shares a quarter, roughly a third of the third-quarter average Fitch calculated. His figure covers funds of a particular age; the Fitch average spans 13 funds. "That investor demand may be cresting, as Fitch and others have noted, but it will take many quarters for the problem to be resolved," he said.

Investors are still looking to redeem billions of dollars of shares through the rest of this year and beyond, InvestmentNews reported. The next data point is Fitch's fourth-quarter figure, which will show whether 9.8% was a turn or a pause.