Pimco Criticizes Daily Valuations on Private Assets Championed by Apollo
Private Credit Market Transparency Elusive Despite Efforts
The $1.8 trillion private credit market has made little progress in improving transparency and accuracy, according to a recent assessment by Pacific Investment Management Co. strategist Lotfi Karoui. Karoui argues that while attempts to increase liquidity in the market are welcome, they will not address the underlying structural constraints that hinder true price discovery.
Apollo Global Management's Efforts Fall Short
Apollo Global Management Inc. has been actively working to provide liquidity and price transparency in the private credit market. The firm announced last week that more than $830 billion of its credit assets will be priced daily by the end of September. However, Karoui suggests that this effort may not be enough to address the market's issues. He notes that the debate over daily pricing in private credit portfolios has evolved from a narrow accounting question into a proposed remedy for the market's dispersed and often stale valuations.
Pimco's Critique of Private Credit Industry
Pimco, an early critic of the private credit industry, has been vocal about the risks in direct-lending markets. The firm has taken a contrarian approach by identifying emerging problems in private-credit-backed companies. Karoui highlights that price-mark dispersion for loans held across multiple business development company portfolios has widened sharply in recent quarters. By the end of last year, marks for the same instrument were, on average, about five points apart. This gap is difficult to reconcile with the notion of arm's-length fair value determinations for identical assets.
| Company | Price-Mark Dispersion (Average) |
|---|---|
| Business Development Companies | 5 points |
Note: The data represents the average price-mark dispersion for loans held across multiple business development company portfolios by the end of last year.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Investor Takeaway
Investors should be cautious of daily valuations on private assets, as they may not improve transparency or accuracy in the private credit market.
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