The once-vaunted private credit sector, a burgeoning area of alternative investment, is currently confronting a period of significant turbulence. While the troubled private credit funds managed by investing behemoths like KKR & Co., BlackRock Inc., and Apollo Global Management Inc. represent a comparatively small fraction of their overall assets under management—often described as a "sliver" or "rounding error" in the context of their vast private fund franchises—these publicly traded vehicles have emerged as disproportionately damaging reputational liabilities. As investors critically assess widespread industry problems, these visible funds are drawing intense scrutiny, prompting their parent firms to enact distinct strategies to mitigate the damage.
The challenges faced by these business development companies (BDCs), which are publicly traded and thus more accessible to retail investors than their non-traded counterparts, are emblematic of broader issues plaguing the $1.8 trillion private credit market. Unlike non-traded funds that can implement redemption caps to weather market storms, publicly traded BDCs face immediate market pricing, often trading at steep discounts to their net asset values. This dynamic has led to significant investor dissatisfaction and a decline in confidence, forcing these asset managers to take proactive measures.
KKR’s Strategic Buyback and Capital Injection
For KKR & Co., a firm managing $758 billion in assets, the persistent issues plaguing its publicly traded FS KKR Capital Corp. (FSK) have reached the firm’s highest executive levels. FSK, a $12.3 billion fund, has been a focal point of concern. According to sources familiar with internal discussions, KKR executives engaged in deliberations regarding strategies to enhance value. This culminated in a significant decision: a $300 million share buyback program, a move that had been strongly advocated by investors. The firm’s assessment indicated sufficient demand for such a program, suggesting a belief that it could effectively address the market’s concerns and bolster the fund’s valuation.
Further bolstering this initiative, KKR announced a comprehensive plan to inject capital into FSK. The firm committed to investing $150 million in preferred equity and launching a tender offer to purchase $150 million of shares at $11 per share. This multi-pronged approach aims to directly reduce the number of outstanding shares, thereby increasing the net asset value per share and potentially restoring investor confidence. Additionally, KKR agreed to waive its portion of incentive fees for four quarters, a concession designed to alleviate the fund’s cost structure and demonstrate a commitment to improving performance.
During the share repurchase period, FSK executives stated that the fund would curtail new investments. This strategic pause is intended to manage leverage levels and preserve liquidity, crucial steps in navigating the current market conditions. The possibility of asset sales has also been put on the table as a means to further strengthen the fund’s financial position.
The challenges for FSK have been significant. In the first quarter of 2026, the fund experienced a 9.9% decline in its net asset value, accompanied by a rise in troubled loans. This performance deterioration underscores the pressure KKR has been under to devise a robust recovery plan.
BlackRock’s Integration and Performance Enhancement
BlackRock Inc., the world’s largest asset manager with a staggering $12 trillion in assets, has also been grappling with the performance of its $1.5 billion BlackRock TCP Capital Corp. (TCPC). This fund has been a persistent concern for the firm over the past year. While TCPC predates BlackRock’s substantial $12 billion acquisition of private credit boutique HPS Investment Partners, the integration of HPS expertise into TCPC has become a key strategy.
According to individuals close to the situation, BlackRock has strategically placed more HPS executives onto TCPC’s investment committee. This move is intended to leverage HPS’s extensive experience in credit selection and portfolio management to improve TCPC’s performance. These HPS executives are now playing a pivotal role in identifying and evaluating new loan opportunities, with the objective of enhancing the fund’s overall returns and reducing its exposure to underperforming assets.
The performance of TCPC has been marked by loan markdowns, which totaled $35 million in the quarter ending March 31, 2026. In response, BlackRock has been actively reducing leverage and portfolio concentration within TCPC. Earlier in 2026, the fund announced a significant 19% cut to its net asset value, a stark acknowledgment of the challenges it faced. More recently, it flagged an additional 5% drop in the fund’s value.
Executives at BlackRock have emphasized the revamped leadership team at TCPC. Three of the fund’s seven-member investment committee now hail from HPS. This includes Vikas Keswani, Head of Direct Lending at HPS, who brings a wealth of experience and has begun integrating some investment decisions at TCPC with BlackRock’s broader credit investing operations, which manage approximately $400 billion.
While the top executives at TCPC are still predominantly from Tennenbaum Capital Partners, a smaller credit firm acquired by BlackRock in 2018, the fund now reports to the private financing business overseen by the HPS team. Phil Tseng, CEO of TCPC and a former partner at Tennenbaum, highlighted the benefits of this integration, telling analysts that the fund "benefits from expanded sourcing and origination, broader investment expertise and resources, and the ability to participate in larger transactions." This strategic repositioning aims to harness the scale and expertise of the larger BlackRock credit platform to revitalize TCPC’s performance.
Apollo’s Potential Divestment and Narrow Focus
Apollo Global Management Inc., with $1 trillion in assets, is reportedly exploring the sale of its $3 billion MidCap Financial Investment Corp. (MFIC) fund. While MFIC has managed to avoid the ultra-steep discounts seen with KKR’s and BlackRock’s offerings, it has still experienced losses and a decline in its net asset value. Furthermore, its specific focus on middle-market lending is seen by some as a narrow niche, particularly when contrasted with CEO Marc Rowan’s ambitious vision for a $40 trillion, largely investment-grade private credit market.
Reports from The Wall Street Journal indicated that Apollo was in discussions to sell the MFIC fund. A representative for Apollo declined to comment on this specific report. The potential buyer for MFIC is understood to be another BDC, suggesting a consolidation within the sector rather than an exit by the parent firm.
The challenges for MFIC are evident in its financial disclosures. Loans marked as non-accrual—a designation typically indicating a borrower’s missed debt payments—climbed to approximately $167 million on an amortized cost basis in the March quarter of 2026, a significant increase from $48.5 million in the same period a year prior. This rise in non-performing loans directly impacts the fund’s profitability and asset quality.
The Broader Landscape of Publicly Traded BDCs
The strategic maneuvers by KKR, BlackRock, and Apollo underscore the unique challenges faced by publicly traded business development companies. These vehicles, structured like publicly traded stocks, offer a degree of liquidity that their non-traded counterparts lack. However, this liquidity comes at a cost when market sentiment turns negative.
The current market downturn in private credit is attributed to a confluence of factors, including concerns about underwriting standards, the quality of loans within portfolios, and a concentrated exposure to software borrowers who are increasingly vulnerable to disruption from advancements in artificial intelligence. This environment has led to a clear bifurcation between the "haves" and "have-nots" in the private credit space. Funds like FSK and TCPC have seen their market values plummet to nearly half of their net asset values, signaling significant investor apprehension.
Haley Schaffer, founder of wealth management firm Waypoint West, articulated the reputational risk inherent in these publicly traded BDCs. She noted that while BDCs often constitute a small percentage of a manager’s total assets, "they’re the most visible products these firms have because they trade publicly and are often packaged for retail. That creates asymmetric reputational risk." This visibility means that poor performance in these relatively small vehicles can disproportionately tarnish the reputation of the larger, more established firms.
The Mechanics of BDC Distress and Recovery
The stark difference in how publicly traded and non-traded BDCs are handling the current market turmoil highlights the limitations faced by the former. Non-traded BDCs can impose redemption caps, effectively controlling the outflow of capital and allowing them to ride out market volatility. Publicly traded BDCs, however, have fewer straightforward options.
One of the primary tools available is share buybacks, as KKR has employed. However, such programs can be a double-edged sword. While they can support the stock price and reduce the number of outstanding shares, they also consume capital that could otherwise be deployed for new investments. This can, in turn, hinder a fund’s growth prospects and potentially exacerbate its underperformance.
Larry Herman, a managing director at Raymond James, suggests that a more effective strategy for shoring up a fund’s balance sheet is through an external manager injecting capital at net asset value (NAV). This approach is advantageous because it does not dilute the existing value of the fund for shareholders. Furthermore, such an investment can serve as a powerful signal of conviction in the firm’s overall private credit strategy.
This is precisely the path KKR and its partner Future Standard ultimately chose for FSK. The combination of a share buyback, a preferred equity injection, and a tender offer, alongside fee waivers, represents a comprehensive effort to stabilize and revive the fund. The commitment to scaling back new investments during the buyback period is a tactical measure to manage leverage and maintain liquidity, crucial for navigating the current economic climate.
Implications and the Road Ahead
The current struggles of these publicly traded private credit funds have broader implications for the asset management industry and the broader financial markets. The visibility of these funds means that their performance is closely watched by retail investors, potentially influencing their broader appetite for alternative investments.
The divergence in strategies—KKR’s capital injection and buyback, BlackRock’s integration of HPS expertise, and Apollo’s reported divestment—reflects the varied approaches firms are taking to address specific challenges. Each strategy carries its own set of risks and potential rewards. For KKR, the success of its buyback hinges on market demand and its ability to improve FSK’s underlying asset performance. BlackRock’s approach relies heavily on the effectiveness of its HPS integration and the ability to generate better loan performance. Apollo’s potential sale of MFIC suggests a pragmatic approach to divesting from assets that may no longer align with its strategic objectives.
The ongoing turmoil in the private credit market also serves as a reminder of the inherent risks associated with complex financial instruments, even when managed by the most established institutions. As the market continues to evolve, investors will be closely observing how these giants navigate these headwinds and whether their chosen strategies can restore confidence and deliver sustainable value. The lessons learned from this period will undoubtedly shape the future of private credit investing and the way these publicly accessible vehicles are structured and managed. The transparency and liquidity offered by publicly traded BDCs, while attractive in stable markets, expose them to amplified scrutiny and reputational damage during periods of industry-wide stress, a dynamic that asset managers are now acutely aware of.
