Money Stuff: Private Credit Is Not on Sale

The simplest model is that the typical private credit fund is worth, say, 80% of what its managers say it is worth. If you are an investor in a private credit fund, and you get a statement saying “the net asset value of this fund is $100 per share,” that means that the market value of the fund — the amount that a willing arm’s-length buyer would pay you for it — is about $80 per share. Give or take; no science to that number; Boaz Weinstein will pay you $65. But something less than $100, anyway.

There are two important caveats to this model. First, this is not a model about fundamental value; it’s a model about market prices. It is quite possible that all the loans in this fund will make high interest payments and pay off at maturity, you will end up getting $130 worth of value out of your $100 share in the fund, and the market value of $80 will turn out to have been too low. That happens.

Second, the “market value” is pretty hypothetical. Most private credit funds do not trade at market prices, or at all. When I say that the market value of a typical private credit fund is 80 cents on the dollar, that is a guess. There is no market. Some people would pay more than 80, others would accept less than 80, and there is no central platform to match them all up.

But this simple model explains some salient facts pretty well. For instance, some private credit funds do trade every day, on the stock market, at market prices. They are called “public BDCs,” business development companies. You can look at the market prices, which tend to be below their reported net asset values. For instance, Ares Management Corp. has a public BDC that trades at about an 8% discount to its most recently reported net asset value; Apollo Global Management has one that trades at about a 22% discount; Future Standard and KKR have one that trades at about a 50% discount. [1]

It also explains this:

Apollo Global Management Inc. is curbing redemptions from one of its largest non-traded private credit funds for retail investors, becoming the latest alternative asset manager to grapple with a surge in such requests.

The $25 billion business development company, Apollo Debt Solutions, capped withdrawals at 5% of outstanding shares Monday after clients sought to redeem 11.2%, according to a shareholder letter.

With redeeming investors receiving just 45% of their capital, Apollo Debt Solutions is returning less cash to clients than some of its peers that capped withdrawals. …

Apollo intends to stick to the same cap next quarter as it balances “the interests of shareholders seeking liquidity with those who choose to remain invested,” it said in the letter, noting that challenging times can benefit investors in the long run. …

“While the market has repriced risk, the fundamentals of the fund’s underlying borrowers remain strong,” the firm stated.

And this:

Ares is limiting redemptions at its $10.7 billion private credit fund as alternative asset managers face a surge in such requests.

The Ares Strategic Income Fund capped withdrawals at 5% of shares after clients sought to redeem 11.6%, according to a letter to shareholders. The firm expects the granted redemptions to amount to roughly $524.5 million. 

These funds — Apollo Debt Solutions and Ares Strategic Income Fund — are not publicly traded BDCs. They are “non-traded” or “private” BDCs, which means that they do not trade on the stock market at market prices. If investors in these funds want to cash out, they can’t just sell their shares on the market. Instead, they have to go to the fund’s manager — Apollo or Ares — and ask it to buy back their shares. The managers ordinarily offer to buy back 5% of the shares each quarter, and they do the buybacks  at net asset value. Historically this was no problem; people were piling in to private credit. But now they are piling out, and Apollo and Ares — and Blackstone and BlackRock and Blue Owl and Cliffwater and other managers of private credit BDCs — have gotten redemption requests for more than 5% of their shares. 

I wrote two weeks ago:

One way to think about it is that those redemption requests are a form of NAV arbitrage. If a BDC says that its loans are worth $100, but you think their market value is only $98, you should try to redeem out of that BDC: You’ll get cashed out at $100, which is more than you think it’s worth. …

The fact that private credit BDCs are getting historically high levels of redemptions might suggest that their investors don’t believe their marks. And BDCs limit redemptions to guard against this: If too many people are cashing out, that suggests that the fund is cashing them out for more than the actual value of their shares.

For “$98” there you could read “$80”: If the market value of these BDCs is 80% of net asset value, then getting cashed out at 100% of net asset value is a great trade and you should do it. And so a lot of people do, or at least try to, though they are capped at 5%.

Conversely, if the market value is 80% of NAV, then cashing people out at 100% of NAV is a bad trade for the BDC: It is paying out 100 cents for something worth 80 cents, leaving less value for everyone else who remains in the fund. Thus the 5% limit, and Apollo’s comment about balancing “the interests of shareholders seeking liquidity with those who choose to remain invested.”

That is, publicly traded BDCs have a market price that balances supply and demand, and that price is around 80% of net asset value. And private BDCs don’t have that. Instead, they trade at 100% of net asset value, but they don’t trade enough: People want to sell, but they can sell only to the funds, which can pay only 100%. [2]  If a thing with a market value of $80 can trade only at $100, there will be a lot of sellers and not a lot of buyers. And so every week now we get stories about private BDCs getting a lot of redemption requests and only meeting some of them.

(This model also explains Boaz Weinstein’s offer to buy shares of a Blue Owl private BDC at 65% of net asset value, which we have discussed around here and also with Weinstein on the Money Stuff podcast: If you think that private credit funds are worth 80 cents on the dollar, then paying 65 cents is a good trade. And if people can only get some of their money out at 100 cents, they might be willing to take 65 for the rest.)

But this model is unsatisfying in other ways. The net asset value of a private credit fund is supposed to reflect its actual value. “Private credit funds are worth 80% of their net asset value” suggests that something is wrong; the funds should be worth what they say they are worth. We talked a few weeks ago about Apollo “ramping up its efforts to give investors more regular insight into the value of its opaque private credit holdings.” The Apollo Debt Solutions shareholder letter says:

Marks are important not only for transparency and credibility but also for fairness. A disciplined valuation process should protect new, redeeming and remaining investors equally by consistently ensuring an appropriate NAV for the vehicle. ...

Mark-to-market is a form of discipline. For Apollo, this means our marks should reflect current market dynamics, even when they do not fully align with our assessment of long-term intrinsic value. When spreads widen in public markets or within a specific sector, we work closely with independent third-party valuation providers to ensure those conditions are appropriately reflected in our marks. When managing for the long-term, we believe it is crucial for valuations to reflect both underlying operating performance and broader market conditions, which includes prevailing credit spreads and the cost of capital.

“Our marks should reflect current market dynamics,” but do they? One possibility is that Apollo is right, the fund is worth its net asset value, and the individual investors trying to get out are wrong. Another possibility is that those investors are right, the fund is worth 80% of NAV, and Apollo — “work[ing] closely with independent third-party valuation providers,” etc. — is wrong.

There are other possibilities. Traditionally closed-end funds (including BDCs) trade at a discount to NAV to reflect the fees that they charge; “$100 of good loans minus future fees to the manager” is worth less than $100. Or the discount could be a pure “liquidity premium”: Individual investors, it turns out, really care about being able to get their money out whenever they want to, and “$100 of good loans but you can’t get your money out all at once” might be worth less than $100 to them. [3] The actual value of the assets in the fund might be $100, but the fund might nonetheless be worth only $80 to jumpy individual investors. (And, therefore, institutional private credit funds might still be worth 100 cents on the dollar, if institutions are less worried about liquidity.) So it is logical for them to ask for their money back, and also logical for the funds to give it to them. “The market has repriced risk,” specifically liquidity risk, but “the fundamentals of the fund’s underlying borrowers remain strong,” so paying out a little money at NAV is fine.

I should add that the simple model does not explain some other salient facts. [4]  For instance:

[Apollo Debt Solutions] expects the granted redemptions to amount to roughly $730 million of gross outflows for the first quarter, offsetting the roughly $724 million of inflows for the period. 

Apollo got about $1.6 billion of redemption requests, [5]  that is, people asking for their money back at 100 cents on the dollar. But it also got $724 million of inflows, that is, people putting in new money at 100 cents on the dollar. In the simple model of “this stuff is worth 80 cents on the dollar,” there would be a lot of sellers at 100 but no buyers. (Except the funds themselves doing their 5% redemptions.) In reality, there are more sellers than buyers, sure, but there are still a lot of buyers. And this is true broadly: Private credit BDCs are getting a lot of redemption requests and limiting redemptions, but they are simultaneously getting inflows.

Which is weird? Private credit, broadly speaking, ought to be on sale now. You can buy Apollo’s public BDC at a 22% discount to net asset value. Boaz Weinstein is bidding for Blue Owl’s private BDC at a 35% discount. This is all pretty well-known stuff. If you are paying the full sticker price to get into a private BDC, in March 2026, that is nice for the BDC, but it’s a bit of a strange trade for you. The intuition here might be “if everyone is panicking about private credit, and I think that panic is overblown, then I should buy” — but that intuition doesn’t work if you’re buying at 100 cents on the dollar.

Elsewhere in funds that do not trade at their net asset value:

A newly-listed closed-end fund has soared more than 1,200% above its net asset value since its debut last week, as investors eager for stakes in IPO-bound companies such as SpaceX and Anthropic PBC push the vehicle’s market capitalization far beyond the estimated worth of its holdings.

Shares in the Fundrise Innovation Fund, listed under the symbol VCX, climbed as much as 36% to $230 each on Tuesday — just their fourth day of trading — and were halted twice for volatility, in an echo of the meme stock era. With the majority of the fund’s shares subject to a lockup agreement, investors bid the small amount that’s available more than 13 times above its recent net asset value per share of $18.97. …

Fundrise Innovation has about $679 million in assets under management, and more than 10% of the fund is not locked up, according to a spokesperson.

This is the opposite of the private credit problem. A lot of individual investors want exposure to SpaceX and Anthropic and OpenAI and the other hot private companies in this fund. Those companies all have more or less visible stock prices, but normal individual investors can’t buy those stocks: They are private companies, and their shares are not readily available. You can buy shares of the Fundrise fund, sure, but not many of them, just “more than 10%” of a $679 million fund, or, you know, 0.005% of the value of SpaceX alone. Supply is low, demand is high, and the premium is 1,200%.

I should say that there are a few other ways to get exposure to SpaceX and similar hot private companies. We talked about some of them last week. A simple one is a cash-settled forward: You find someone who wants to bet against SpaceX, and you take the other side of the bet. We have talked about Benn Eifert, a hedge fund manager who “has entered into personal wagers with tech professionals and others about OpenAI’s eventual valuation, complete with legal contracts,” so these bets are out there. But they are not necessarily easy to find, and tweeting at Eifert is maybe not the most convenient investing user experience.

What you want is some sort of product wrapper for these bets. The simplest would be an exchange-traded fund: You could just buy stock, on the stock exchange, representing “I am betting on the price of SpaceX stock when it eventually goes public.” And other people could just buy stock, on the stock exchange, representing the opposite bet. And the ETF company could just match them up. This happens with public stocks — there are ETFs that bet on and against Strategy Inc. — so why not private stocks too?

As it happens, we talked last year about a pair of proposed closed-end funds from RiverNorth Capital Management LLC that would sort of do this. And those funds are going public this week. They are tied, not to SpaceX, but to the “Prime Unicorn Index,” an index of 30 hot private tech companies including SpaceX. But there’s a long fund that bets on the unicorns, and a short fund that bets against them, and the funds’ bets are matched up on the stock exchange. They are closed-end funds, not ETFs, meaning in practice that their day-to-day prices would not necessarily reflect their net asset values. It would be weird if both of them trade at a premium.

There is one more important way to get exposure to SpaceX stock, which is EchoStar Corp. At the Information, Theo Wayt reports:

The satellite telecommunications company last fall struck a series of deals to sell wireless spectrum rights to SpaceX in exchange for $8.5 billion in cash and $11.1 billion in SpaceX stock. Once the deal closes next year, EchoStar will own a significant chunk of SpaceX, while SpaceX will use the spectrum for its next generation of Starlink direct-to-cell mobile service. The SpaceX stake will be one of EchoStar’s most important assets. …

Shares of EchoStar have skyrocketed more than 300% since last August, when the company began selling off its spectrum (starting with a deal with AT&T). While the rally may reflect relief that EchoStar would survive—it had looked to be on the verge of bankruptcy before it did the deals with SpaceX and AT&T—some of the enthusiasm almost certainly reflects its newfound exposure to Elon Musk’s company.

We talked about this last year: EchoStar is nominally a satellite broadband communication company, but in practice it is largely a collection of wireless spectrum licenses that it is in the process of selling to other companies. Some of those companies are paying cash, but one of those companies is SpaceX and is paying stock. So, loosely speaking, you could analyze EchoStar as “a reasonably determinate amount of cash plus $11 billion of SpaceX stock at $212 per share.” (EchoStar’s market capitalization is about $33 billion.) It’s not quite SpaceX, but it’s more SpaceX than you can get from, for instance, Fundrise.

A thing that has driven me a little bit insane over the last year or so is that the US has legalized sports gambling, nationwide, by accident. From 1991 until 2018, federal law essentially prohibited sports betting, and then the US Supreme Court struck down that law and said that states had to be allowed to make their own decisions on sports betting. So they did. Some states legalized and regulated sports betting, normally for customers who are at least 21 years old. Other states continued to prohibit sports betting. In each case, the state made some choice; laws were debated in state legislatures, and lawmakers considered public opinion and policy arguments.

And then about a year ago, shortly after President Donald Trump was inaugurated, the federal government tossed all of that aside and said: No, online sports gambling is now legal across the US, it has to be open to 18-year-olds, and the state regulatory regimes are invalid. Now sports gambling is federally regulated, though only barely.

Except the federal government never actually said that! Congress never passed a law legalizing sports gambling, and even the Commodity Futures Trading Commission — the federal agency that, bizarrely, has claimed responsibility for sports gambling regulation — hasn’t put out any rules about it. Trump did not run on a platform of legalizing sports gambling for 18-year-olds. Nobody voted for this or discussed it.

Instead, it was a bit of technical regulatory entrepreneurship by the prediction-market firms, mostly Kalshi. Basically the law allows Kalshi to offer “event contracts” subject to CFTC regulation, which preempts state regulation. That law, it seems, was not intended to allow sports betting: The CFTC’s rules prohibit “gaming” contracts, and Kalshi itself admitted in 2024 that “contracts on ‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts.” But in the friendlier Trump administration, Kalshi just started offering sports betting, and the CFTC didn’t stop it. States tried to stop it, but Kalshi argued that, as a federally regulated futures exchange, it is not subject to state regulation: CFTC regulation preempts state gaming regulation. And because the CFTC hasn’t stopped Kalshi, nobody can. 

This argument has not been completely successful — “Nevada on Friday won a temporary restraining order to prevent prediction-market platform Kalshi from offering event-based contracts related to sports, elections and entertainment,” and Arizona brought criminal charges last week — but it has been mostly successful, and the CFTC has gotten behind it. But now Congress has noticed:

A bipartisan pair of U.S. senators are introducing legislation Monday to prohibit entities regulated by the Commodity Futures Trading Commission, including prediction-market exchanges Kalshi and Polymarket’s U.S. platform, from listing contracts related to sporting events.

“The CFTC is greenlighting these markets and even promoting their growth,” Sen. Adam Schiff (D., Calif.) said. “It’s time for Congress to step in and eliminate this backdoor which violates state consumer protections, intrudes upon tribal sovereignty and offers no public revenue.”

The legislation is the first bipartisan Senate bill seeking to regulate prediction markets. The bill also seeks to prohibit “casino-style games” from being listed on the platforms, such as slot machine games, video poker, blackjack and bingo.

“Too many young people in Utah are getting exposed to addictive sports betting and casino-style gaming contracts that belong under state control, not under federal regulators,” said Sen. John Curtis (R., Utah), the proposed bill’s co-sponsor. 

This does seem obviously right, which I guess means it won’t go anywhere?

If you happen to know in advance that President Donald Trump will or will not bomb Iran on some particular day, and you are not especially ethical, and you want to make a quick buck, one thing you could do is insider trade on that information. Obviously this is not legal advice, or any other sort of advice.

What should you trade? Well, the simplest answer is to go on Polymarket, the prediction market site, and buy the “Yes” or “No” contract for “Will the US bomb Iran on Thursday” or whatever. The advantage of this is that you can directly monetize exactly the information you have. The main disadvantages are:

1. It’s illegal, but really any sort of insider trading on war plans is illegal and a bad idea; this is not unique to Polymarket. 
2. That said, it is illegal for prediction markets in the US even to list war contracts, and Kalshi doesn’t, so that is a bit of a constraint on your trading. 
3. People will notice if you trade on Polymarket: Your trades directly reflect your inside information, and people love to go around accusing people of insider trading on Polymarket. So you might get caught.
4. One reason they’ll notice is because prediction markets are, still, relatively small. If you want to bet on a bombing contract, you won’t be able to bet that much, and you will probably move the price in doing so.

The only slightly less simple answer is to go to the oil futures market and sell or buy crude oil futures. The advantage of this is that oil is a huge liquid global market, so you can put down a lot of money without moving prices much or attracting all that much attention. The main disadvantage is that you have to do some translation work: You have to turn the datum “Donald Trump won’t bomb Iran this week” into the conclusion “therefore oil futures prices will go down.” This requires some knowledge about the world — beyond just knowing Trump’s bombing plans — and is subject to some risk: Even if you get the general direction right (“no bombs make oil go down”), some outside event might nonetheless make oil prices go up and then you’ll lose your bet.

Still, I get the sense that Polymarket is for hobbyists and oil futures are for people who want to make real money. The Financial Times reports:

Traders made bets worth half a billion dollars in the oil market about 15 minutes before Donald Trump’s post touting “productive” talks with Iran sent the price of crude tumbling and ignited volatility in other assets.

Roughly 6,200 Brent and West Texas Intermediate futures contracts changed hands between 6.49am and 6.50am New York time on Monday, just a quarter of an hour ahead of the US president’s post on Truth Social that there had in recent days been “productive conversations” with Tehran to end the war in Iran. The notional value of those trades was $580mn, according to FT calculations based on Bloomberg data. …

The well-timed trades echoed the flurry of large highly profitable bets made on prediction market Polymarket on the timing of the US’s attacks in recent months on Iran and Venezuela.

WTI futures fell about 7% on the post, for a quick profit of about $40 million. Meanwhile that “flurry of large highly profitable bets” on Polymarket “made a combined profit of $330,000.” So this would be more then.

Japan’s SMFG explores possible takeover of Jefferies. US’s Mysterious $15 Billion Crypto Haul Faces Questions in Court. SEC questions ratings issued by agency behind private credit boom. How Keeping Private Credit Safe Became Iowa’s Problem. Tripadvisor Adds New Directors as Part of Deal With Activist Starboard. JPMorgan Offers Clients a New Way to Hedge AI Debt Risk. The Silicon Valley Salesman Accused of Helping China Get Nvidia’s Top Chips. Hedge fund Millennium explores shifting Dubai staff to Jersey. NYSE Partners With Securitize to Develop 24/7 Tokenized Securities Platform. Hedge Fund Founder Weiss Loses Defamation Suit Against Jefferies. OpenAI Taps Former Meta Executive to Lead Ad Push. Bank of London fined over faked documents. Why MBA Tuition Keeps Rising. Red Lobster’s Last Gasp. Odey Says Receptionists May Have Thought He Was Just a ‘Creepy Old Man.’

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