Around an Eighth of BDC Loans Show Wide Valuation Gaps, Research Finds

What the study found

Researchers at the Frankfurt School of Finance & Management reviewed BDC filings with the SEC to see how consistently managers value the same private credit borrowers. They found the share of borrowers with marks that diverge by 5 percentage points or more climbed to 12.3% as of June 30, from 9.3% a year before.

Report author Sascha Steffen said the gap indicates some managers are already treating certain borrowers as downgraded, and noted that when the proportion rises, "it's usually a signal that there's actually something wrong."

Marks are sliding, but often late

The same analysis shows about 1 in 10 BDC private credit loans are marked below 90% of face value, up from 7.7% last year. Those markdowns often surface with a delay even when stress has begun to show - unlike public corporate bonds, where prices update continuously.

One reason is how managers get paid. Private credit managers earn fees on net asset value. As Steffen put it: "They have an incentive not to value this correctly, so the marks will respond relatively late."

Differences in how assets are priced remind investors to seek clearer signals before deciding. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

The opacity problem and why it matters

Disagreement over how to value the same borrowers is a long running sore spot in private credit and a clear sign of how opaque risk pricing can be across managers. Even headline measures vary widely - default estimates can read 1%, 6% or 19%, depending on who is tallying them.

For investors, the takeaway is timing risk. When marks move more slowly and differ across portfolios, reported values can lag underlying conditions, making it harder to read performance in real time.

A bit more insight into market quirks can give investors a meaningful edge over time. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.