Semi-liquid BDCs pass $300 billion as Davidson Kempner flags liquidity

Semi-liquid business development companies grew from about $10 billion in 2019 to more than $300 billion in 2025, according to research cited in a Davidson Kempner white paper on liquidity. Closed-end BDCs grew from under $100 billion in 2019 to almost $250 billion in 2025, the same research shows. Davidson Kempner argues in the paper that an "illusion of liquidity" helped BDCs grow.

Quarterly repurchases at semi-liquid BDCs are typically capped at 5% of shares outstanding.

The cited paper describes a redemption funded by selling loans and adding borrowing as leaving the holders who stay with a smaller and more levered portfolio than the one they bought.

The paper, "The Fragility of Semi-Liquid Private Credit Funds," found cash buffers, investment income and maturing loans insufficient to meet repeated 5% redemptions. It concluded semi-liquid or evergreen structures offered far less liquidity than advertised once a meaningful share of investors sought to redeem at the same time. Funds in net outflow sold loans and increased borrowing instead, the authors found.

Alternative Credit Investor first reported the white paper, titled "When the Tide Turns: Absolute Return's Liquidity Advantage." It follows elevated redemption requests at non-traded BDCs that Alternative Credit Investor links to concerns over credit quality and overexposure to certain sectors.

As Private Wealth Daily previously reported, Davidson Kempner's chief investment officer has flagged software's share of private credit at one-third. That concentration means a redemption queue tests the loan book rather than the liquidity wrapper.