Redemption requests from investors in nontraded business development companies (BDCs) accelerated in the second quarter, with $5.9 billion in shares sold back to fund managers, according to data from alternative investment tracker Robert A. Stanger & Co. That brings the total for the first half of 2026 to $12.7 billion, a dramatic reversal for an asset class that had attracted billions in retail money during the post-2020 boom.
The surge in redemptions reflects growing unease among financial advisors and their clients about the risks embedded in private credit. Nontraded BDCs, which lend to mid-sized and smaller private companies, had lured investors with yields of 9% to 11% and offered advisors lucrative commissions. But the shine has worn off as high-profile corporate defaults and concerns about AI-driven disruption to software companies—a major borrower segment—have prompted a flight to liquidity.
Many investors, however, are not getting their money back immediately. Most nontraded BDCs cap quarterly redemptions at 5% of net asset value, and Stanger estimates that $9.6 billion in repurchase requests are currently waiting in line. That backlog has become a key metric for advisors evaluating fund health, according to Mark Goldberg, a former brokerage executive and founder of Alternative Investments Markets Intelligence. He advises focusing on funds with redemption queues exceeding 15% of NAV, as well as those with heavy exposure to software firms or shrinking balance sheets.
Kevin Gannon, CEO of Stanger, notes that funds have so far met redemption requests up to their caps, unlike some nontraded REITs that suspended redemptions a few years ago. “They have credit lines and assets—the loans—that they can sell,” he said, though he acknowledged that net asset values have softened. The ability to sell loans in a stressed market remains a key risk, especially as private credit faces increased scrutiny from regulators and rating agencies.
The redemption wave has also choked off new capital. Nontraded BDCs raised just $2 billion from clients in the second quarter, an 82% drop from the same period in 2025 and the lowest quarterly total since the end of 2020, before Blackstone and other heavyweights ramped up their retail private credit offerings. The slowdown in fundraising is a stark contrast to the heady days when Apollo, Blackstone, Blue Owl, and others sold billions of dollars of these semi-liquid funds through wirehouses and independent broker-dealers.
The current environment echoes the post-2008 era when nontraded BDCs emerged as a way for retail investors to access private credit, which had traditionally been the domain of institutional investors. But the asset class has grown increasingly complex, with some funds offering daily or monthly liquidity while holding illiquid loans. Advisors are now grappling with how to manage client expectations and redemption queues, particularly as the continuation fund structures that have become popular in private equity may offer alternative exit paths for some investors.
For financial advisors, the key takeaway is to scrutinize the liquidity terms and underlying portfolio quality of any nontraded BDC they recommend. As Goldberg notes, the funds with the longest wait lists and the most concentrated exposure to vulnerable sectors are the ones most likely to face pressure. The rise of buffer ETFs and other liquid alternatives has given advisors new tools for income and downside protection, but private credit remains a distinct asset class with its own risk profile.
The trend is also drawing regulatory attention. The SEC has been examining valuation practices and liquidity management in the private credit space, and the recent lawsuit against modular builder S2A highlights the potential for misuse of investor funds in private offerings. While not directly related to BDCs, such cases underscore the need for due diligence.
Looking ahead, the redemption wave may continue as investors reassess their allocations to private credit. The recent volatility in AI-related stocks and the broader market could further dampen appetite for illiquid investments. For now, advisors are left to navigate a delicate balance: meeting client demands for liquidity while managing the long-term performance of their portfolios.
