Why the average BDC's 27% tech exposure is worth a closer look.
This might surprise you: the average BDC has 27% exposure to technology. That average concentration is an example of why, when strategies look similar on paper, the underlying composition of what you're actually buying matters more than most people realize.
Start with industry diversification: not just whether a fund is diversified, but where the concentrations are. Then look for duplicated exposure across products. Many BDCs participate in the same transactions, which can add concentration risk and reduce the diversification benefits investors may be seeking.
Watch to hear Brian Stewart, Global Co-Head of Corporate Credit at Fortress, explain why he believes portfolio composition matters when evaluating BDC strategies.
Brian Stewart:
Here's something that might surprise you. The average BDC has 27% exposure to software. When you're evaluating multiple private credit strategies, it can be difficult to identify differentiating factors. That's why the underlying composition of what you're actually buying matters more than most people realize.
Let me give you a framework for thinking about this. First look at industry diversification. Not just whether the fund is diversified, but where those concentrations actually are. This isn't about avoiding good sectors, but it's about understanding where you can find opportunities with better risk adjusted returns. Second, examine where you might be duplicating your exposure across products. Many BDCs participate in the same transactions, potentially exposing portfolios to more concentration risk, and reducing the diversification benefits you're seeking.
So when you are evaluating private credit strategies, ask for the actual sector and transaction breakdowns. Take a look at capital structure positioning, and ask about portfolio overlap with what your clients might already own. Because when the historic and current yields look similar on paper, these details are what actually differentiate performance and risk exposure when markets turn.
