This post is a warning shot about private credit and private equity, aimed at U.S. Treasury Secretary Scott Bessent

https://substack.com/home/post/p-191439330

TLDR

This post is a warning shot about private credit and private equity, aimed at U.S. Treasury Secretary Scott Bessent. The author argues that nearly $13 trillion in private markets, about $9.4T in private equity and $3.5T in private credit, is being valued using manager driven, weakly challenged marks, which can make assets look safer and smoother than they really are.

The core claim is that the system is fee driven, not truth driven. In the author’s view, firms collect management fees and carry based on valuations they heavily influence, while losses, if and when they arrive, ultimately land on end investors like pensions, 401(k) holders, and retirees.

He also argues that the official private credit default numbers understate real stress, because troubled loans may be hidden through things like PIK toggles, distressed exchanges, and amend and extend deals instead of being clearly recognized as defaults.

A major example in the piece is Cliffwater Corporate Lending Fund. The author says he parsed its SEC filings and found many more problem loans than the fund’s reported figures would suggest, including 189 PIK loans, 58 amendment PIKs, and 50+ unreported non accruals, while the fund reportedly maintained a long streak of positive returns and no losing year.