From View From The Top, 25 March 2026
The Private Credit Illusion
Valuations, Leverage, and the Risk No One Marks
Private credit has been one of the defining winners of the past decade. Strong returns. Floating rates. Institutional inflows. And for a long time, it appeared remarkably stable. Over the past week, the narrative has started to shift.
Not because of defaults. Because of something more subtle: valuation.
THE GAP NO ONE WANTS TO TALK ABOUT
Recent commentary suggests some private credit portfolios are carrying loans at valuations above where they would trade in the open market. In some cases, junior debt is being marked higher than comparable senior debt.
That’s not normal.
In a restructuring, junior sits below senior in recovery. Junior recovers less, or nothing. So if junior is marked above senior — something isn’t aligned with reality.
MARK TO MARKET VS MARK TO MODEL
Public markets adjust continuously. Private markets adjust slowly. We are seeing this now in real time. That’s not inherently wrong. Illiquidity has a premium and private structures have legitimate reasons to hold valuations.
But it creates a gap.
Public debt trades down. Equity markets price in stress. Private credit holds steady. For a period, both realities can coexist.
Eventually, they converge. They always do. And now we are seeing this with debt funds and private credit across the board.
THE ILLUSION OF STABILITY
Private credit has been marketed as stable. Low volatility. Predictable income. That stability is real — but it comes from structure, not from the absence of risk. Private credit doesn’t mark to market.
It marks to a model or a spreadsheet agreed to by managers.
And models lag reality. That’s not a flaw in the system. It’s a feature of it. Until it isn’t.
WHERE LEVERAGE CHANGES THE STORY
Leverage made private credit extremely attractive. It enhanced returns, increased yield, scaled strategies. But leverage assumes stability or even better rising prices and take-out.
When values hold and timelines behave, it works exactly as intended. When they don’t, the dynamic reverses — fast.
In today’s environment:
– Valuations are under pressure
– Refinancing windows are narrowing
– Duration is extending beyond original assumptions
That combination matters more than any single factor in isolation and it costs.
Because leverage doesn’t just amplify returns it can kill them quickly when any of the above take place individually or worse, together.
It amplifies mispricing.
THE HIDDEN RISK
This is where the real issue sits. Not in defaults. Not in headlines.
In delayed recognition.
Low reported loss rates don’t mean low risk. They can mean losses haven’t been realised yet. And when delayed losses do surface, they tend to move quickly — and in clusters.
The quiet period isn’t safety. It’s accumulation.
The most dangerous moments aren’t when things break.
They’re when everything appears stable — but isn’t.
When assumptions go unchallenged. When models replace reality. When time hides risk instead of resolving it.
That distinction matters more now than it has in years.
