Private Credit Is Not on Sale

The simplest model is that the typical private credit fund is worth, say, 80% of what its managers say it is worth. If you are an investor in a private credit fund, and you get a statement saying “the net asset value of this fund is $100 per share,” that means that the market value of the fund — the amount that a willing arm’s-length buyer would pay you for it — is about $80 per share. Give or take; no science to that number; Boaz Weinstein will pay you $65. But something less than $100, anyway.

There are two important caveats to this model. First, this is not a model about fundamental value; it’s a model about market prices. It is quite possible that all the loans in this fund will make high interest payments and pay off at maturity, you will end up getting $130 worth of value out of your $100 share in the fund, and the market value of $80 will turn out to have been too low. That happens.