The negative sentiment in private credit is misplaced. Major bankruptcies like First Brands and Tricolor were not private credit deals but bank-syndicated loans where significant fraud, such as double-pledged receivables, was a primary factor.
Some BDC management teams refuse to buy back their stock at massive discounts to net asset value (NAV). This preserves the fund's asset size, on which their fees are calculated, prioritizing compensation over creating significant shareholder value.
Despite market fears about AI disrupting software companies, underlying private credit loans are structured defensively. They are often written at a 30% loan-to-value, meaning there is a 70% equity cushion before the lender's principal is at risk.
Instead of buying a volatile stock outright, investors can sell cash-secured puts. This strategy generates immediate income and establishes a breakeven purchase price significantly below the current market, mitigating the risk of being too early on an investment.
The historically low number of home sales isn't just about buyer affordability. A major factor is seller reluctance; existing homeowners are "locked in" by their low-rate mortgages and find it financially unattractive to sell and buy a new property at current higher rates.
Top asset managers have significantly higher margins, better growth prospects, and fewer credit or regulatory risks than banks. Despite this, the market can value them at lower multiples than many banks, creating a potential relative valuation opportunity.
The market is wrongly punishing asset manager Blue Owl ($OWL) for redemption issues in one of its private funds. The manager itself collects durable fees from permanent capital and doesn't hold the direct credit risk, creating a valuation disconnect.
Recent negative headlines about private credit stem from illiquid private funds with redemption gates, not publicly traded BDCs (Business Development Companies). These public BDCs use permanent capital, meaning they don't face investor runs or forced asset sales.
Bond insurer Assured Guaranty isn't in a high-growth industry, but its management consistently buys back 12-13% of its shares annually at a large discount to book value. This superior capital allocation has driven extraordinary growth in book value per share.