Private credit valuations are systematically inflated
The bull case for private credit returns is built on artificially smoothed, manager-marked valuations that fail to reflect public market distress and economic reality, according to Nick Nemeth.
The argument
The guest argued that private credit managers are 'checking their own homework' by using sponsor-marked EBITDAs with unrealistic add-backs and good-times multiples. He pointed out that while public SaaS companies have traded down significantly, private credit funds like Blackstone's B-Cred continue to mark similar software loans at or near par, masking the true downside risk.
The thesis, stress-tested
✓ What validates it
- ✓A widening discount to NAV in publicly traded BDCs like BXSL
- ✓An increase in redemption gates or withdrawal limits being triggered by private credit funds
▸ Risks discussed
- ▸Inflow slowdowns could trigger liquidity issues and force the sale of best assets first
- ▸High concentration of software loans vulnerable to AI disruption
- ▸Unfunded capital commitments that funds are contractually obligated to meet
Hear it yourself
"You've argued that private credit returns look smoother than they really are because they're not mark to market. They're manager marked. So I would say that that is, like, the the best place to start for an audience of investors and financial advisers."
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