The Rational Reminder Podcast

Episode 305 - Is Private Credit Special?

23 snips
May 16, 2024
Exploring the rise of private credit, its appeal to investors and businesses, and the risks involved with high fee structures. Discussion on proposed capital gains tax changes, the death of value, and more in the after-show section.
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INSIGHT

What Is Private Credit?

  • Private credit involves non-bank entities lending to private firms, often riskier than bank loans.
  • These loans have high yields, equity-like features, and typically high fees embedded.
INSIGHT

Valuation Smoothing Masks Risks

  • Private credit valuations are smoothed and less volatile than public assets, masking true risk.
  • This smoothing creates an illusion of stability and high returns, complicating risk assessment.
INSIGHT

BDC Net Asset vs Market Value

  • Publicly listed BDCs show private credit funds outperform benchmarks by 2.74% annually on a net asset value basis.
  • However, this outperformance disappears when using market prices instead of smoothed net asset values.
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