How are direct lending loan values calculated? We introduced the topic in our “Par for the Course” installment last month. By popular demand we’re digging deeper into how experienced managers establish that number. Investors see the output, but don’t always get a picture of the inputs. So here’s a quick lesson on loan valuations in a private credit portfolio. 

The first thing to know is a single loan valuation can involve upward of 20 data fields. This includes financials, market comps, outlook, management commentary, and more. Each one is capable of pushing fair value in either direction. Getting it right is as much art as science. And that’s where the fun begins.

To eliminate the appearance of conflict, deal teams have moved away from setting marks. Instead, dedicated internal valuation teams have stepped in. Insulated from origination bias with no skin in the game, their incentive is to get it right.