Unlike corporate bonds with distant bullet maturities, most structured credit products return principal monthly. This constant amortization shortens the asset's duration over time, making its value progressively less sensitive to interest rate swings and mark-to-market fluctuations during periods of distress.

In 2022, as public bond funds declined due to rising rates, private credit funds appeared deceptively stable because they weren't marking assets to market. This perceived safety attracted massive capital inflows, which in turn forced managers into more aggressive underwriting to deploy the new cash quickly.

The absence of daily pricing in private credit removes an essential discipline. Mark-to-market in public markets acts as an honest, early warning system that forces managers to scrutinize underperforming assets, a mechanism private lenders lack.

For the sophisticated custom target-date funds that will be early adopters, private credit is the easiest first step. Unlike private equity, some private credit products can already be marked daily. This operational readiness, combined with liquidity from distributions, makes it the path of least resistance.

Jeff Gundlach argues private credit's attractive Sharpe ratio is misleading. Assets aren't priced daily, hiding risk. When an asset is finally marked, it can go from a valuation of 100 to zero in weeks, exposing the “low volatility” as a dangerous fallacy.

Unlike the 2008 crisis, which featured a complete liquidity freeze and over-levered banks, today's market is more resilient. The mature private credit industry acts as a crucial "shock absorber," providing liquidity and stability to the system that was entirely absent during the Global Financial Crisis.

Howard Marks argues that private credit's apparent low volatility during market downturns is not magic but an accounting feature. By not marking to market daily, it mimics the psychological trick of simply not looking at your public portfolio's value, creating a potentially false sense of security for investors.

Private equity funds report lower volatility because they aren't required to mark assets to market daily. Unlike public funds, they can avoid reporting sharp downturns, a practice critics call "volatility smoothing" or "lying." This creates a misleading picture of risk and return.

Published private market returns mask true volatility. After "de-smoothing," private equity's volatility is 20%, double its published rate of 10%. In contrast, opportunistic credit's volatility is much lower (low teens), making it a superior asset class on a risk-adjusted basis for institutional portfolios.