More than half of the publicly traded funds that make up the visible end of the private credit market swung to a loss in the first quarter, a review of 53 business development companies shows, as writedowns on loans to software firms weighed on results across the group.
Average profit across the 53 funds fell to a loss of about 7.6 million dollars for the quarter, down from a gain of roughly 26 million dollars a year earlier. It was the group's first unprofitable quarter since at least 2024. Twenty eight of the 53 funds posted a loss, compared with 12 a year ago and just 10 in 2024.
Software exposure at the center
The losses trace largely to markdowns on loans made to software companies, a sector that BDCs leaned into heavily in recent years. Outstanding loans to software as a service firms had climbed to more than 500 billion dollars by the end of 2025, close to a fifth of all direct lending, as investors worried that artificial intelligence tools could erode the subscription revenue models many of those companies rely on. Software company share prices fell by close to 30 percent between October 2025 and February this year, a slide that fed directly into how lenders marked their loan books.
Two of the larger names in the sector illustrate the pressure. Blue Owl's OTF fund took a 490 million dollar markdown in the quarter, its largest since the fund was set up. FS KKR Capital Corp reported 195 million dollars in realized losses, its highest figure since 2024 and its second highest on record, while its net asset value per share slipped nearly 10 percent to 18.83 dollars.
Money still flowing to private vehicles
Even as the listed funds struggled, money kept moving into their less visible, non-traded counterparts. Blue Owl's private BDC platforms pulled in roughly 1 billion dollars in new capital during the quarter, enough to offset around 170 million dollars of outflows from one of its older listed vehicles. Direct lending overall remains a 3.5 trillion dollar industry, and the quarter's results are being read by analysts as an early signal of how exposed that market has become to a single sector's fortunes.
