Pacific Investment Management Company (Pimco) has expressed skepticism regarding the recent push for daily asset marking in the private credit market, which is valued at $1.8 trillion. According to strategist Lotfi Karoui, simply increasing the frequency of asset valuations does not necessarily lead to greater transparency or accuracy.
In a note to clients, Karoui emphasized that while efforts to enhance liquidity—defined as the ability to buy or sell assets quickly and at fair prices—are commendable, they fail to address the market's fundamental structural issues. He noted that without true price discovery, these initiatives may only create a false sense of liquidity.
Apollo Global Management has been actively working to improve liquidity and price transparency in the private credit sector. The firm announced plans to price over $830 billion of its credit assets daily by the end of September, aiming to address the market's often outdated valuations.
Karoui remarked that the discussion surrounding daily pricing has shifted from a mere accounting issue to a proposed solution for the inconsistencies in asset valuations across various portfolios. He pointed out that discrepancies in pricing for identical loans held by different business development companies have widened significantly, complicating fair value assessments.
In conclusion, while daily pricing may seem beneficial, Pimco maintains that it does not resolve the underlying challenges of the private credit market. Investors should remain cautious and consider the implications of these valuation practices.
