Asset growth exploded from 2020 to 2021 in both non-traded real estate investment trusts (known as non-traded REITs or NTRs) and non-traded business development companies (known as non-traded BDCs or simply BDCs).

UMB Fund Services partnered with FUSE Research Network and BlueVault to publish a report exploring the state of the market for these increasingly popular uncorrelated asset vehicles.

Once reserved for institutional and high-net-worth investors, even some of the more exotic alternative investments are now mainstream. This report provides an overview of the current state of non-traded real estate investment trusts and non-traded business development companies—starting with how they invest and trade—plus insights on upcoming trends in this product segment.

Strong market growth

With difficult markets for both stocks and bonds, volatility and inflation, it is no secret that asset management firms are on a mission to source more revenue from alternative investments. Alternatives allow for higher management fees compared with ETFs and passive funds that have squeezed the margins for traditional active shops. This is a strong motivator for firms currently looking to diversify their revenue sources.

Non-traded REITs and BDCs allow asset managers to leverage their expertise in such things as real estate, credit and sector-specific investing, while reaping the benefits of stickier assets and higher fee potential.

Investor interest in both categories is strong. Total assets invested in non-traded REITs rose from $116.9 billion at the end of 2020 to $185.5 billion at the end of last year. The year-over-year growth in BDC assets in the same period was even greater: from $11.1 billion to $45.0 billion. In both categories, Blackstone dominates the market. The research report breaks down assets of both types by top managers and investment theme.


Evolving product features

With strong demand from both institutional and retail investors—and a push “down market” by managers—new product features continue to emerge. Among these are:

  • Regular valuation information
  • Net asset value (NAV) estimates and appraisals
  • Liquidity features where up to 20% of shareholders can liquidate each year

Operational considerations

Given heightened interest by asset managers in launching new, non-traded REITs and BDCs, it is likely there will be more funds with smaller numbers of investors, raising cost concerns. Historically from an investor servicing and transfer agency perspective, new products require greater scale to optimize volume pricing models.

Asset managers are now finding they can bundle smaller products with their service providers for pricing advantages. Opportunities for such models as “stairstep pricing,” where the sponsor pays a fixed amount per investor on an initial product launch, but a decreased amount per investor as other new products are launched and the sponsor’s total volume increases over time.

This approach is mutually beneficial, lining up the asset manager’s strategic business growth plans with the service provider’s potential economies of scale for their call centers, transaction processing, commission payments and investor communications.

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Access the report, State of the Market: Non-Traded REITs and BDCs

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