Private credit faces a systemic valuation reckoning
The bear case argued is that the private credit and private equity markets are facing a severe, systemic valuation correction as illiquid assets are marked down from par to zero.
The argument
The guest argued that private markets are structurally inferior to public markets due to a lack of daily transparency and valuation lags. He pointed to BlackRock's sudden markdown of a $25 million loan to zero as a sign of systemic underwriting and valuation issues that will continue to emerge.
The thesis, stress-tested
✓ What validates it
- ✓More frequent and sudden loan markdowns by major asset managers
- ✓Banks reporting losses on private equity and private credit exposures in upcoming quarterly earnings
▸ Risks discussed
- ▸Private equity managers have a conflict of interest to delay write-downs to protect their management fees
- ▸Non-bank financial institutions lack government backstops in a liquidity crisis
Hear it yourself
"One of the headlines, that you flagged this week too, BlackRock marks down a $25,000,000 loan from a 100¢ to zero in just three months. So it makes me wonder, like, how how how is one, how is that even possible?"
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