(Bloomberg) — The troubled private credit funds, by most any measure, are a sliver of the assets of investing giants KKR & Co., BlackRock Inc. and Apollo Global Management Inc.
Yet as the firms’ most outward-facing vehicles during the $1.8 trillion market’s turbulent 2026, they’ve become outsized reputational stains as investors assess problems across the industry. Now, each asset manager is taking steps to address them, albeit with different tools.
At $758 billion KKR, the persistent issues dogging its publicly traded FS KKR Capital Corp., a $12.3 billion fund, reached the highest levels of the firm, according to a person familiar with the matter. Executives deliberated over ways to generate value and along with FS KKR’s board of directors landed on a $300 million share buyback program, which investors had been lobbying for, after gauging it would have sufficient demand, said the person, asking not to be identified discussing internal conversations.
Meanwhile, BlackRock TCP Capital Corp., a $1.5 billion fund, has been a thorn in the side of the world’s largest asset manager for the past year. It predates the splashy $12 billion acquisition of private credit boutique HPS Investment Partners, but the firm has added more HPS executives to TCP’s investment committee, giving them a key role in picking new loans to improve performance, according to people familiar with the matter.
And Apollo, with $1 trillion, is reportedly shopping around its $3 billion fund MidCap Financial Investment Corp., which has avoided trading at an ultra-steep discount like KKR and BlackRock’s offerings but still faced losses and net asset declines. Plus, its focus on middle-market lending is narrow when compared with CEO Marc Rowan’s vision of a $40 trillion, largely investment-grade private credit market.
The moves illustrate the challenges facing business development companies that are packaged on exchanges like stocks — in contrast to their non-traded counterparts that have faced an unprecedented wave of redemptions. Funds like FSK, TCPC and MFIC have a set pool of money, and if investors want out, they can sell at the prevailing market price.
Lately, those prices have been the lowest in years and far below the stated value of their loans, which suggests more pain ahead for the funds — and, possibly, the firms as a whole.
“BDCs are often low single digit percentages of these managers’ total assets under management, almost rounding errors relative to the private fund franchises,” said Haley Schaffer, who founded wealth management firm Waypoint West.
“But they’re the most visible products these firms have because they trade publicly and are often packaged for retail,” she said. “That creates asymmetric reputational risk.”
Representatives for KKR and BlackRock declined to comment. Apollo didn’t have a comment on a report from the Wall Street Journal that it was in talks to sell the MFIC fund.
Private credit has been hammered this year over concerns about underwriting standards, loan quality and concentrated exposure to software borrowers at risk of disruption from advances in artificial intelligence. The haves and have-nots are becoming more clear during the selloff, with FSK and TCPC trading down to almost half of their net asset value.
While non-traded BDCs can simply enforce their redemption caps in a bid to ride out the market turbulence, publicly traded ones have fewer straightforward options. Spending money on buying back shares can limit a fund’s ability to make new investments, further dragging down the fund.
Read more: Private Credit Stocks Signal More Pain Is Coming: Credit Weekly
One of the better options is shoring up the fund’s balance sheet “through an external manager injecting capital at NAV,” said Larry Herman, a managing director at Raymond James. That’s because the investment at that level wouldn’t dilute the value of the fund, and it can showcase conviction in a firm’s overall private credit strategy, he said.
That’s ultimately where KKR and its partner Future Standard landed when assessing FSK, which saw net asset value decline 9.9% and troubled loans pile higher in the first quarter.
As well as the $300 million buyback, KKR is investing $150 million in preferred equity and tendering for $150 million of shares at $11 a share, according to a statement Monday. The firm also agreed to waive its portion of incentive fees for four quarters.
FSK will scale back new investments during the share repurchase period to contain leverage and maintain liquidity, executives said on a call with analysts. Asset sales are on the table, too.
At BlackRock’s TCP, markdowns totaled $35 million in the quarter ended March 31. The firm is reducing leverage and concentration in the portfolio, and in January announced a dramatic 19% cut in net asset value. Last week, it flagged another 5% drop in value for the fund.
Executives have emphasized the revamped leadership team at the fund, with three of its seven-member investment committee coming from HPS. That includes head of direct lending Vikas Keswani, who joined HPS from BlackRock in 2010, and has integrated some investment decisions at the fund with the rest of BlackRock’s roughly $400 billion credit investing operation.
TCP’s top executives are still predominantly from Tennenbaum Capital Partners, a much smaller credit firm BlackRock acquired in 2018, but the fund now reports up to the private financing business run by the HPS team.
The fund “benefits from expanded sourcing and origination, broader investment expertise and resources, and the ability to participate in larger transactions,” Phil Tseng, CEO of TCP and who was a partner at Tennenbaum before joining BlackRock, told analysts this month.
At Apollo’s fund, loans marked as non-accrual — typically meaning the borrower missed debt payments — climbed to about $167 million on an amortized cost basis in the March quarter, from $48.5 million in the same period a year ago.
One of the anonymous sources cited by the Wall Street Journal said the buyer for MFIC is likely to be another BDC.
But it’s not easy for buyers and sellers to agree on a price for BDCs since portfolios are marked quarterly and managers aren’t likely to sell below those values, said Chelsea Richardson, a senior director at Fitch Ratings.
“We don’t expect to see a meaningful increase in managers looking to sell BDCs,” she said. But when a BDC is small or no longer core to a firm’s strategy, “the manager may prefer to sell if the assets have been underperforming rather than continuing to dedicate resources to working through them.”