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Direct Lending Returns

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  • Antti Suhonen

Abstract

I examine the performance of US business development companies (“BDC”). BDCs have produced returns in line with those of private funds engaged in direct lending. Leveraged loan and small-cap value equity returns explain a significant part of BDC performance, and the alpha of BDCs is zero on a market-value basis but a statistically significant 2.74% per annum based on net asset value (NAV) valuations. I find no evidence of an illiquidity premium, which suggests that the alpha could result from regulatory arbitrage or a peso problem. Cross-sectional BDC returns are widely dispersed and exhibit strong persistence in top- and bottom-quartile manager performance.

Suggested Citation

  • Antti Suhonen, 2024. "Direct Lending Returns," Financial Analysts Journal, Taylor & Francis Journals, vol. 80(1), pages 57-83, January.
    • Handle: RePEc:taf:ufajxx:v:80:y:2024:i:1:p:57-83
    DOI: 10.1080/0015198X.2023.2254199
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