<div id="readability-page-1"><div>Bargain hunters are snatching up private lending funds in the stock market, eager to buy assets that look cheap by a key measure.Valuations for the funds last month dropped to their lowest since 2022 amid concerns that the lenders may be overexposed to software businesses under threat from AI disruption. Souring sentiment toward the vehicles’ non-traded peers, which have been hit with more than in redemption requests from investors, also spooked public market shareholders, creating a buying opportunity for some investors.The demand has helped boost valuations for private credit funds that trade on exchanges, known as publicly-listed business development companies. Now, their price to book ratios are back closer to longer-term averages, and an index of BDCs has gained about 2.4% this month through Thursday’s close amid a broader recovery in global markets, sparked in part by hopes that the war in Iran is nearing its conclusion.Investors are about to get a wave of new information that could trigger a fresh round of buying, or selling: earnings from the biggest BDCs. Ares Capital Corp. will post results on April 28, followed by a series of other BDCs backed by asset managers including Blue Owl Capital Inc., BlackRock Inc. and Blackstone Inc.The private lenders will reveal crucial information about how credit losses are shaping up, and whether the total value of their portfolios are rising or falling. “Our expectation is that we will see some pressure from markdowns in software investments during the first quarter given what’s happened with spreads in that sector,” said , an analyst at Fitch Ratings. Even if there aren’t actual credit losses, “we would expect that market related moves would translate into lower valuations for those investments, which could negatively impact net asset value.” But many BDCs have seen their share prices recover in recent weeks, and valuations appear to be getting higher. Ares Capital Corp., which closed as low as about 87.5% of its book value in March, was trading closer to 93% on Thursday. The Cliffwater BDC Index was at about 80.5% of its book value in late March, and was closer to 86% on Thursday. One trade that investors have been looking at involves selling unlisted BDCs, and buying listed vehicles instead, as a way to profit from differences in their valuations. In some cases, a money manager might have both listed and unlisted versions of a similar fund. For non-listed BDCs, when an investor cashes out, they get their money back at the net asset value of the fund, although the fund might limit total withdrawals every quarter. Meanwhile, listed BDCs are actively traded, and can trade at less than their net asset value. That allows for an arbitrage opportunity, where investors can sell their unlisted shares and buy similar listed shares at a discount, said , a portfolio manager at Putnam Investments who runs an exchange traded fund that buys BDCs. “We’ve seen that in our BDC fund, where investors have said that they are liquidating their private holdings and buying the public funds for less, and we’ve seen significant inflows into our fund because of that,” Petro said. Fund managers including Saba Capital’s have offered to buy investors’ shares in unlisted business development companies at a steep discount. Not every investor is convinced it makes sense to buy now. It’s hard to know how bad loan losses from software will be in the coming years, said Scott Opsal, chief investment officer at Leuthold Group. Loans tied to software businesses make up about 20% of BDC portfolios, Barclays Plc strategists wrote in February. “You don’t want to catch a falling knife,” Opsal said. “At the end of the day, these BDCs don’t have enough of a yield pickup to offset the unknown black hole of software loans that could hurt you since you can get decent yield from investment grade debt or a junk bond fund.” Through Thursday’s close, US investment-grade bonds have gained 0.4% this year, while junk bonds have returned 1.2%, according to Bloomberg index data. Listed BDCs, meanwhile, are down 7.8%, according to the Cliffwater BDC Index. And even if BDC valuations have recovered somewhat, they are still below their levels at the start of the year. The Cliffwater BDC index started the year at about 94% of its net asset value, and has averaged about 98% over the last five years. For some investors, that means there’s still room for the shares to recover. “Absent a cataclysmic market breakdown, this is the worst fundamental non-market breaking selloff, but I do think it is overdone,” Putnam’s Petro said.</div></div>

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Bargain hunters are capitalizing on low valuations of private lending funds, particularly publicly-listed business development companies (BDCs), which have seen a recovery in share prices. Concerns over credit losses, especially in software investments, have led to a cautious outlook. Upcoming earnings reports from major BDCs could influence market sentiment. While some investors are shifting from unlisted to listed BDCs for better valuations, others remain skeptical about potential loan losses. Overall, BDC valuations are still below early-year levels, suggesting room for recovery despite recent gains.

Cheap Private Credit Funds Draw Bargain Hunters