(Bloomberg) -- More frequently marking assets does little to improve transparency or accuracy in the $1.8 trillion private credit market, according to Pacific Investment Management Co. strategist Lotfi Karoui.
“Attempts to increase liquidity — the ability to buy or sell an asset quickly, in size, and at prices reflecting fundamental values — are welcome developments,” Karoui wrote Monday in a note to clients. “Yet until these efforts address the market’s inherent structural constraints, including a lack of true price discovery, they will only increase the perception of liquidity without truly improving liquidity.”
Apollo Global Management Inc. has been stepping up efforts to provide liquidity and price transparency in the private-credit market, where assets don’t typically change hands. Last week, the firm said more than $830 billion of its credit assets will be priced daily by the end of September.
“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,” Karoui wrote.
Pimco, an early critic of the private credit industry, has been vocal about the risks in direct-lending markets and has taken the other side of the bet by hunting for emerging problems in private-credit-backed companies.
“Price-mark dispersion for loans held across multiple business development company portfolios has widened sharply in recent quarters,” Karoui wrote. By the end of last year, “marks for the same instrument were, on average, about five points apart,” he added. “These gaps are difficult to reconcile with the notion of arm’s-length fair value determinations for identical assets.”
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