How to access US private credit: Comparing BDCs and interval funds

Private credit, and particularly the US direct lending market, has grown into an almost US$2 trillion opportunity. For borrowers, it provides flexible and bespoke financing solutions; for investors, it offers the potential for attractive and predictable yield. As the market has matured, a range of investment structures has emerged to give wholesale investors access to this formerly hard to access market. However, not all structures are created equal. Today, the three most common are listed BDCs, non-traded BDCs, and interval funds, each with very different implications for fees, leverage, transparency, and ultimately their investors’ experience.

While they all generally provide exposure to the same types of private loans, the investment structure is just as important as the underlying assets when it comes to understanding risk and return. For advisers and wholesale investors, understanding these differences is crucial when evaluating allocations to private credit.

Listed BDCs: The original, now ‘legacy’ approach

Business Development Companies (BDCs) were created in the 1980s to provide small and mid-sized businesses with access to capital, and listed BDCs became the first public gateway to private credit. In many ways, they resemble Listed Investment Companies (LICs) in Australia in that their shares are traded an exchange, offering daily liquidity and immediate access to a portfolio of credit investments.

The ‘cost’ of this daily liquidity is that market prices can diverge materially from the underlying portfolio loan valuations. In terms of disclosure, listed BDCs must file regularly with the SEC, including detailed holdings that show both cost and fair value of the underlying portfolio, with valuations audited periodically.

However, because their shares are traded on exchange, listed BDC investors remain exposed to persistent discounts or premiums to NAV, often driven by sentiment rather than fundamentals. As a result, listed BDCs offer neither capital stability nor equity diversification – two characteristics that many investors perceive as the key benefits of private credit. For example, the LPX Listed Private Credit Index measures the price performance of a basket of 25 of the largest and most liquid listed private credit BDCs in the US (hedged into Australian dollars). Over the 10–year period to 30 September 2025, this index has:

• delivered an underwhelming total return of only 5.83% p.a.,
• displayed strong correlation to US equity markets, and
• Exhibited higher volatility and experienced a more severe Covid drawdown than the S&P 500 Index.¹

S&P 500 vs listed private credit BDC index total returns (AUD hedged): 30 Sept 2015 – 30 Sept 2025

Sources: Bloomberg, as at 9 October 2025. Both series indexed to a starting value of 100. You cannot invest directly in an index. Past performance is not indicative of future performance.

Recently, we have again witnessed significant discounts to NAV open up, with some of the largest listed BDCs’ share prices falling between 10-20%.

Fees and leverage are another drawback of this structure. Listed BDCs are permitted up to 2:1 debt-to-equity, meaning for every dollar of equity contributed, the vehicle can borrow two dollars of debt. Base management fees are typically charged on gross assets (including debt), so investors effectively pay fees on borrowed money as well as equity. Add in incentive fees of 15–20% of net income, and total costs can easily reach 4–5% annually. Whilst hard to get reliable estimates on the full cost burden of these structures, according to Cliffwater’s research, the industry average sits around 5.15% p.a.².

Non-traded BDCs: Refreshed look & a smoother ride

As listed BDCs matured, managers sought to reduce the impact of daily market pricing and provide investors with a more fee-efficient experience. This led to innovation and the rise of non-traded BDCs in the mid-2000s, although they only gained serious traction after 2020 as advisers and retail investors sought more stable access to private credit. By March 2025, the non-traded BDC market reached US$127 billion in assets, surpassing the US$112 billion listed BDC.³

There are two main differences between listed BDCs and non-traded BDCs. The first is the latter are valued at NAV rather than by having their price dictated by an exchange. This delivers investors a much smoother experience, with the value of the non-traded BDC investment reflecting the value of the underlying loan portfolio. During a period of stress, the structure would be expected to experience a lower drawdown compared to those seen in the listed BDC market, all things being equal, although it’s important to remember that most of these newer vehicles are yet to see a major market correction. The second is that they allow for periodic redemptions, typically up to 5% of NAV per quarter, subject to board approval.

Non-traded BDCs have also improved the fee structure by charging on net assets (NAV) rather than gross assets, though incentive fees of around 12.5% of net income remain common. These incentive fees can encourage the use of higher leverage, as the structure retains the same 2:1 debt-to-equity allowance as listed BDCs. According to Cliffwater, the average all-in fee for non-traded BDCs is around 3.31%⁴, which is approximately 30% lower than their listed counterparts.

Like their listed version, this structure has a high degree of transparency. Non-traded BDCs provide quarterly shareholder reports with NAV-based valuations overseen by the boards and often supported by third-party valuation firms.

Interval funds: Investor-first design

Interval funds are fast becoming the main investment structure utilised by financial advisers looking to access alternatives in the United States. Although interval funds were first permitted in 1993, they rose to prominence in the late 2010s as a more regulated and ‘investor-friendly’ way to bring alternatives into the wealth channel. Such has been their growth that in 2025 Morningstar commenced a dedicated ratings program specifically for interval funds.

Interval funds typically allow for the daily purchase of shares at NAV and with a requirement to allow redemptions at set intervals, usually quarterly (hence the name ‘interval fund’). This structure bridges the gap between closed-end funds, where money may be locked up for 10 years or more, and mutual funds that typically offer daily liquidity. It gives investors more certainty around scheduled exit windows, given they are required to provide liquidity at these intervals, which differs from the BDC structure that generally only provides liquidity on a ‘best-efforts’ basis. Because shares are issued and redeemed at NAV, investors are insulated from discounts and premiums faced by listed BDCs.

A key difference between interval funds and BDCs is the use of leverage. Interval funds are limited by regulation to a maximum of 0.5:1 debt-to-equity, which is only 25% of the leverage permitted for BDCs. This lower reliance on debt has often resulted in a far more stable return profile, particularly during periods of market stress.

Transparency is another key advantage of the interval fund. Like mutual funds, interval funds are required to file quarterly portfolio holdings with the SEC in a standardised format, disclosing each loan’s cost and fair value. These valuations are independently reviewed and audited annually, giving investors a consistent, comparable view across managers. For regulators like ASIC, this kind of regular, standardised disclosure is a shining example of where the local industry could one day exist.

As for fees, across the spectrum of interval funds there are a variety of fee arrangements that are mostly determined by the types of alternatives and private assets held within the fund. Morningstar cited the average prospectus-adjusted expense ratio across all interval fund share classes at around 2.49% p.a.⁵, with only a handful of interval funds charging performance fees. This makes interval funds on average one of the most cost-effective ways to access US private credit, combining transparency, lower leverage, and more predictable liquidity.

Comparing key features of the structures

*Based on Cliffwater research – Non-Traded Perpetuals Take Control of the BDC Market, But Deployment Issues Continue, Cliffwater LLC, 27 May 2025

The structural evolution is clear. Listed BDCs, established in the 1980s, opened the door but at the cost of volatility, discounts to NAV, and fees charged on gross assets. Non-traded BDCs, the next evolution in the 2010s, helped to smooth volatility and shifted fees to be charged on net assets, but still relied on discretionary liquidity, harder-to-compare disclosure, and significant leverage. Interval funds, available since 1993 but showing a resurgence since the 2010s, typically combine the strengths of both: NAV-based pricing, lower leverage, lower costs, more predictable liquidity — and crucially, standardised transparency on the underlying portfolio.

For advisers and wholesale investors, the lesson is clear: understanding the structure of your investment is crucial to understanding its fees, leverage, risk, transparency and return. Interval funds have been emerging as the most ‘investor-aligned’ way forward — and increasingly, the future of access to private credit.

Sources:

1. Total returns of the LPX Listed Private Credit Index from 9 October 2015 to 9 October 2025.2. Non-Traded Perpetuals Take Control of the BDC Market, But Deployment Issues Continue, Cliffwater LLC, 27 May 20253. Non-Traded Perpetuals Take Control of the BDC Market, But Deployment Issues Continue, Cliffwater LLC, 27 May 20254. Non-Traded Perpetuals Take Control of the BDC Market, But Deployment Issues Continue, Cliffwater LLC, 27 May 2025
5. As at May 2024. Morningstar’s Guide to Interval Funds, 2024