Behind the Yield
Retail Investors Got Access to Private Credit. Did They Get Institutional Transparency?
I'm going to say something that might surprise you coming from a fixed income guy.
Retail investors deserve to have the same returns that institutional investors enjoy.
Private credit has delivered significant returns to a few select groups of investors - endowments, sovereign wealth funds, and pension funds.
I'm for it.
As a man who believes in capitalism and the free flow of capital, after 30 years in the markets, retail investors today have access to direct lending investments starting with as little as $5,000 to invest.
That's great.
The problem that I see is the incentives within this product.
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When Blue Owl made the decision to permanently halt redemptions in February, the conversation that ensued was about Blue Owl.
Was the portfolio stressed? Were the loans bad? Was this a canary in the coalmine for private credit in the United States?
These are the wrong questions to ask.
The loans were fine. Blue Owl sold $1.4 billion in direct lending investments at 99.7% of par. OBDC II has delivered a 9.3% annualized return to investors since its 2017 inception.
The problem was not the loans.
The problem was the wrapper.
An initial investment requirement of $5,000. A sales load of up to 5% up front. The dealer-manager responsible for independent due diligence was Owl Rock Securities, Blue Owl's own affiliate. Redemptions were capped at 2.5% of its weighted average shares outstanding per quarter. At peak net asset value, this represented $50 million in redemptions available per quarter.
In the third quarter of 2025, retail investors requested $60 million in redemptions.
All of this was stated in the filing. The prospectus stated that investors should not expect to be able to sell their shares.
So why did they expect to?
Because the distributor of this product was paid to make retail investors comfortable with their investment. Up to 5% upfront. Up to 1% per year in trailing fees. Fees that only existed if this specific product got sold.
This product.
I'm not alleging fraud. I'm following the incentives.
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This is not a Blue Owl story.
FS Energy and Power Fund. According to secondary market data and investor arbitration filings from securities law firms, shares of this fund that sold at $10.00 in the initial offering have traded in the secondary market for $2.30, yielding a negative 14.86% return to investors since inception. This fund was sold to retail investors, including into retiree IRAs. I obtained this data from secondary market sources, as I was unable to independently verify this data.
Prospect Capital. A decade of NAV erosion. A 25% dividend cut in November 2024. Today trading at a 58% discount to net asset value.
Different managers. Different vintages. Different underlying assets.
Same architecture. Same incentive problem.
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Now let's look at the best actor in the room.
Blackstone is the largest alternative asset manager in the world. BCRED, their flagship non-traded BDC, has generated a 9.8% annualized return since inception.
In the first quarter of 2026, the fund received $3.8 billion in redemption requests, which represented 7.9% of the fund's net asset value. What did Blackstone do? They raised the cap on redemptions to 7%. They injected $400 million of their own capital into the fund, including $150 million from more than 25 senior executives.
Blackstone's own president said that what investors in these products are doing is "trading away a bit of liquidity for higher returns."
Read that again.
The largest alternative asset manager in the world, with unlimited resources, raised $400 million of their own capital to satisfy redemptions from retail investors.
Now, imagine where the rest of the industry is.
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The current debate in the industry is focused on the asset managers, the disclosures they make, and their structures.
That's the right conversation to have. But it's missing one very important person.
The advisor that sat across from the client.
I'm not here to indict financial advisors. Most financial advisors were handed this product by the broker-dealer. The 9% yield was on the cover page. The sales message was pre-packaged.
Now that the promise has been tested at companies such as Blackstone, Blue Owl, FS, and Prospect, what does that mean for the advisor next week?
Because that conversation is coming.
The advisor who can explain the mechanics to the client is the advisor who will retain that client.
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I said I was for it, and I meant it.
But I do believe that institutional investors need to be given institutional transparency.
Knowing what you own. Knowing what you're paying for. Knowing the level of liquidity available to you. Fee structures such that your advisor receives the same payment whether you invest in this product or a plain investment-grade bond.
Institutional investors have had this for decades.
The retail investor who put $10,000 into OBDC II in 2019 for $10 a share may have gained access to the institutional market. But what they got was institutional yield, if it worked, wrapped in a retail distribution system that was paid to sell, not to advise.
Follow the incentives.
That will lead you to the answer. And the answer, when you find it, points toward something simpler, more transparent, and incapable of the conflicts of interest that made this mess possible.
That's the conversation I'm trying to start.
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