In this video, the speaker critiques the perceived safety of private credit investments, highlighting several systemic risks. He explains that private funds lack daily mark‑to‑market transparency, so valuation changes are often hidden until delayed write‑downs occur. Recent data show a sharp rise in non‑accrual positions—loans where borrowers are behind on payments—serving as a leading indicator of stress. The stress is concentrated in early‑stage, software‑oriented tech companies that offer little tangible collateral beyond intangible assets like IP. Because many credit funds chase the same pool of borrowers, there is a high concentration of exposure, amplifying the impact when those companies default or are forced to sell at a loss. The speaker argues that lenders in private credit are not automatically protected; they must understand the underlying assets and borrower risk, as the current environment reveals that “safe” private credit can quickly become vulnerable.
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This also plays into one of the biggest knocks on private investments. They're not perfect. We think they're pretty awesome. But one of the biggest knocks that investors, you know, say is sometimes it's not always transparent about the values because it's not mark-to-market daily like the stock market. And so the challenges that are kind of popping up have really been challenges for the past few years, but these funds are now only starting to make these write-downs recently, right? And one of the things you can look at, I was doing some research the other day, the increase of non-acruel position meaning the amount of positions in a fund or portfolio that are behind on their payments or are not meeting the original business plans. So the borrowers who actually the private companies gave money to, they are behind on their payments. They're in default, per se. And that started happening about a year and a half ago, started to see some pretty significant increases. But it's a leading indicator, right? Because just because someone is behind a payment doesn't necessarily mean that the value of that loan is impaired. Doesn't necessarily mean you have to take a write-down, but it is concerning, right? And so it's kind of these These figures have been in there for a little while. And as this credit cycle has just gone on, a lot of these companies just couldn't make it out. And now we're seeing these write-downs happen. But what's really happening, if you kind of break down and dig into where is the stress coming from, a lot of it is early-stage companies and generally, you know, software-related or tech-related companies. So these are businesses, and yes, you're investing as a lender, you know, to those businesses. But if you're lending to a tech company, you know, I used to be a commercial banker, so this I did it for a job. What's your collateral? Nothing. It's not much, right? Maybe some IP, maybe some servers somewhere, but there's nothing that you can go and take back like you can with real estate and have a piece of real estate or some kind of collateral that you can go sell and protect part of your position. And so what's happening as a lot of this capital has flooded the market, it's made the competition for private credit very, very high. And they're all kind of going after the same companies generally, the kind of cross-pollination of all these different credit funds pretty much all own the same things, right? So it's a very high concentration of types of borrowers and types of companies in these funds. And so as these companies have— are not making it, they're either going under or they're having to sell at a loss to a competitor or something else, that's going to flow through to the lender. So even though you are a lender, because you're lending to businesses and technology businesses that don't have a lot of assets, you're taking a lot more risk. And I think this is where some investors maybe just assume, hey, I'm in credit, I'm a debtor, I'm a lender, I'm just in a safe position. I'm not going to lose money. But it's all a matter of understanding what you're lending on and what you're lending to.
