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 (see our Chart of the Week) 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.