When valuations tell only part of the private credit story

he financial advisor take on “The Lead Left” newsletter series, authored by Randy Schwimmer, Vice Chairman and Chief Investment Strategist at Churchill Asset Management, is dedicated to help financial advisors stay informed about developments, and movements in private capital investing.

Bottom-line for advisors upfront

1. The mismatch between retail investors and private credit assets is a central issue to address directly, since clients without multi-cycle experience may misread temporary mark-downs as signals of permanent value loss rather than normal price fluctuation in a secured lending portfolio.
2. Portfolio construction discipline, specifically covenants, sector diversification, and meaningful equity cushions, should separate managers positioned to absorb turbulence from those that may have compromised underwriting standards under capital pressure.
3. Manager selection is the decisive variable in this environment, because the character of a manager's deal sourcing, whether driven by discipline or by pressure to deploy capital, may ultimately determine portfolio outcomes.

As private credit has moved deeper into wealth channels, financial advisors are increasingly called upon to help clients understand what loan valuations actually reflect, and what they do not.

What is a loan worth? At its core, a loan's value is driven by two forces: credit risk (the likelihood the borrower repays) and market risk (the rate and spread that determines the investors' demand to hold it). With today's macro noise, questions about the accuracy of value, or "marks," have grown louder. Yet loans in the heavily scrutinized BDC portfolios have been trading essentially at par even against a backdrop of mounting headwinds. That is, in some ways, a reassuring data point. But it masks a more complicated story about what happens when retail capital meets an asset class it does not fully understand.

The problem is not simply valuation. It is the mismatch between investors who now own these assets, and the assets themselves. Retail investors, unlike pension plans, insurance companies, and sovereign wealth funds, do not have long-term liabilities to match the long-term tenors of private credit. Nor do they have the multi-cycle history owning private credit that would make it easier to contextualize short-term noise against the longer arc of secured lending performance.

When a BDC marks a portfolio company down, even modestly or temporarily, the reaction from a retail investor base is structurally different from an institutional LP who has stayed invested in private markets through the tech-wreck (2001), the Great Recession (2008), and Covid (2020). The institutional investor understands that prices fluctuate and that the covenant package and security position are what determine recovery. The retail investor sees a decline and worries this reflects worsening default risk and real value deterioration.

The tyranny of retail cash runs in both directions. On the inflow side, too much capital to deploy can pressure managers to write loans they would otherwise pass on, accepting terms they would typically reject from a more patient capital base. On the outflow side, retail redemptions can hamper direct lenders' capacity, slowing deployment and widening spreads. We are already seeing elements of this. But for managers with dry powder, this is the opportunity.

A conservatively structured middle market portfolio with strong covenants, broad sector diversification, and meaningful equity cushions is far better positioned to absorb a period of market turbulence than a large cap portfolio with covenant-lite structures, higher leverage, and concentrated sector exposure.

As Wells Fargo Equity Research noted in March 2026,^¹ "Non-tradeds will likely be fine in the base case and perhaps improve on their design for the long run." That may prove true, but loan values are reflective of the manager. The character of your deal sourcing determines the destiny of your portfolio. Was the loan derived out of discipline or desperation? The beauty of this private credit moment is the market will ultimately determine which managers are associated with which.