Johnathan Rickman | Blue Vault
Over the last year or more, nontraded, credit-focused alternative investments have steadily raised capital, grown assets, and generated solid returns for investors. So, why are many of them running for the exits?
It was only just a year ago that the wealth management milieu crowned private credit “king,” touting the asset class—projected to grow into a roughly $3.5 trillion industry by 20281—as the next big thing. Interest rates were higher then, but the Fed’s rate-cutting cycle was already well underway.
What’s changed? Investor sentiment. Recent high-profile bankruptcies2 that left several financial firms exposed and at least one case of a retail private credit fund extending its redemption limits3 have signaled to some that another financial crisis may be looming.
Some industry experts we’ve spoken with say nervous investors are responding to media “noise” and forgetting that these types of investments are long-term and require patience.
At Blue Vault, our first question is: what does the data show? Past performance is not indicative of future results, but with redemptions rising in the credit space (as we’ll see), past performance can potentially provide clues that can help explain rising investor anxiety.
Let’s dive into Blue Vault’s new, searchable research portal and see what clues we uncover.
Nontraded BDCs
Q4 2025 Insights
Credit-focused funds are a group that consists of nontraded business development companies (BDCs), credit-focused interval funds, and credit-focused tender offer funds.
As of December 31, 2025, Blue Vault tracks 22 open and two closed publicly offered, nontraded BDCs. Investors boosted the industry’s fundraising and asset levels to new, record highs last year4, but fundraising fell in the fourth quarter.
Public capital raise for the nontraded BDC industry fell in Q4 2025, generating an estimated $8.0 billion, including DRIP proceeds, compared to $10.1 billion in Q3. That’s also lower than Q2’s second-quarter results of $9.6 billion.
Private fundraising also fell in the fourth quarter, generating an estimated $2.9 billion compared to $3.4 billion in Q3 2025.
The nontraded BDC industry now has $247.0 billion in assets under management, up from $229.6 billion in AUM as of September 30, 2025, and up from $178.4 billion at year-end 2024.
Distribution and Returns: The Big Picture
The first nine months of 2025 gave us a big-picture view of the nontraded BDC industry’s distribution and return results. The industry’s average distribution yield was solid overall, hovering at around 9% between Q4 2024 and Q3 2025:
Nontraded BDC Performance Q4 2024 – Q3 2025
| Period | Public Capital Raise (Including DRIP) ($B) | AUM ($B) | Average Distribution Yield |
| Q4 2024 | $7.5 | $178.4 | 8.96% |
| Q1 2025 | $9.4 | $192.8 | 8.77% |
| Q2 2025 | $9.6 | $212.2 | 8.95% |
| Q3 2025 | $10.1 | $229.6 | 9.07% |
The industry also generated strong returns last year, with all but two offerings posting positive total returns as of September 30, 2025. The median industry return through the first nine months of 2025 was 6.38%, while the average return for the same period was 5.83%. Note: Return results only include funds that were in operation for the entire period.
As we dig deeper into the data, we uncover findings that add important context to the industry’s otherwise strong performance.
Net Investment Income Payout Ratio
Net investment income payout ratio is a metric that covers income earned from investments during the quarter (or year), less investment and operating expenses.
Our research found that only 10 of the open nontraded BDCs we track—less than half—fully covered their distributions, posting year-to-date 2025 net investment income payout ratios of 100% or less.
Taxable Income Payout Ratio
Taxable income payout ratio is calculated as the year-to-date total distributions divided by estimated year-to-date net taxable income. This metric aims to determine how much of the distribution is derived from taxable income. Net taxable income includes net investment income and realized capital gains.
We also found mixed results with this metric. Beyond the beginning stages of the fund, this ratio should be below or close to 100%. Of the 22 open nontraded BDCs tracked by Blue Vault, only six had ratios at or below 100% as of September 30, 2025. Another six had ratios between 100% and 110%.
Leverage Ratio
BDCs are considered highly leveraged funds and are typically allowed to borrow up to two times their equity value. Blue Vault calculates leverage ratio as the total borrowings divided by total assets. This number also includes off-balance sheet net TRS borrowings (TRS notional value minus cash collateral divided by TRS notional value).
Of the 22 open nontraded BDCs tracked by Blue Vault, only three offerings had leverage ratios over 50% as of September 30, 2025, indicating that most open offerings are not overly reliant on debt financing.
Interval Funds
Inflows and Assets
Interval funds—investment vehicles characterized by low investment minimums, frequent valuations, and 1099 tax forms—continue to be popular with credit investors, who last year likewise helped boost this sector’s capital inflows and managed assets5.
Year-to-date through October 31, 2025, and based on most recent filings, interval funds tracked by Blue Vault reported $33.2 billion in capital raise, including DRIP, surpassing the sector’s fundraising of $27.2 billion and $17.6 billion for the same time period in 2024 and 2023, respectively.
The industry also had $150.7 billion in assets under management as of October 31, 2025. Blue Vault’s research includes coverage of 87 active interval funds, most of which focus on private credit investments, but also include private equity and private real estate strategies.
Distribution and Coverage
The interval fund industry also reported solid maximum distribution rates, with the top five results in double digits:
| Interval Fund | Asset Class | Maximum Distribution Rate |
| Alternative Strategies Income Fund | Credit | 22.03% |
| City National Rochdale Strategic Credit Fund | Credit | 21.92% |
| Flat Rock Opportunity Fund | Credit | 15.10% |
| Catalyst/Perini Strategic Income Fund | Credit | 12.72% |
| Invesco Dynamic Credit Opportunity Fund | Credit | 11.75% |
*Blue Vault data as of October 31, 2025
As of October 31, 2025, and based on most recent filings, roughly half of all funds were fully covering their distributions, posting GAAP earnings payout ratios of 100% or less.
While markets and investor sentiment always change, analyzing an investment’s performance and approach to liquidity is ever important. This analysis should also include performing qualitative and quantitative due diligence that goes beyond the numbers.
Bookmark Blue Vault’s website to stay up to date on the latest industry news, product developments, and performance data on alternative investments.
References
1 2025 Private Credit Market Outlook | Paul Weiss
2 Fallout from First Brands bankruptcy ripples through credit markets – InvestmentNews, October 10, 2025
3 Blue Owl Capital sued for allegedly hiding BDC redemption crisis – InvestmentNews, January 27, 2026
4 Nontraded BDC Fundraising, Asset Levels Balloon in Q3 2025 – Blue Vault, January 15, 2026
5 Interval Fund Fundraising Grows as Redemptions Rise – Blue Vault, February 17, 2026
