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What’s driving private-credit valuations?
13/03/2026
Taking a closer look at what’s happening in BDCs
Private credit has become popular with many investors by offering relatively high income and the promise of lower day-to-day volatility than public bond markets. Instead of buying tradable bonds, investors lend money directly to companies and receive regular interest payments. On paper, this can look stable. Recently, however, the segment has come under closer scrutiny, as investors reassess whether valuations and liquidity assumptions still hold in a more challenging environment.
From a European perspective, it is important to recognize that this more critical view is largely driven by developments in the U.S. Europe has no direct equivalent to U.S. business development companies (BDCs), and private credit is typically held in more conservative, institutionally focused structures. Valuation stress therefore tends to emerge more slowly and less visibly. In the U.S., by contrast, private credit, via BDCs, is more accessible to retail investors and can, therefore, be more exposed to shifts in market sentiment.
As we see it, the debate is not about private credit as an asset class, but about valuations, liquidity and borrower resilience. Concerns intensified after several high-profile corporate bankruptcies in 2025, which raised questions about underwriting quality and risk concentration among highly leveraged borrowers. Between late 2025 and early 2026, investor caution turned into action. Redemption requests across private-credit-focused products rose sharply, exceeding USD 7bn, with much of the pressure concentrated in U.S. vehicles, namely BDCs, offering limited redemption options.
These vehicles provide a useful lens into current market tensions. They lend to small- and mid-sized private businesses and give retail investors access to private credit strategies once dominated by institutions. Publicly-traded structures react quickly to market sentiment as investors can simply sell their shares, while non-traded versions are priced closer to net asset value (NAV) and allow only limited, periodic redemptions. This makes them particularly sensitive when confidence weakens.
That sensitivity became evident when a large U.S. asset manager cancelled a planned transaction involving one of its BDCs. The decision triggered unusually high redemption requests, forcing the manager to restrict withdrawals and sell assets to raise cash. While this helped manage short-term liquidity, it also reinforced investor concerns about how easily capital can be accessed when sentiment turns.
In stressed periods, the publicly traded vehicles often trade well below their reported NAV. While they offer liquidity in theory, that liquidity can come at a high cost when markets are unsettled. Today’s discounts suggest that prices are being driven more by negative headlines and concerns around specific borrower segments, particularly software-related business models, than by any confirmed decline in reported asset values.
In our view, the high exposure to software in the U.S. private credit industry does pose a risk given the potential disruption by AI. However, software with mission-critical solutions with high switching costs should continue to do well while companies with easily replicable data may struggle. For retail investors, the key question seems to be whether the NAV itself can be trusted if broader credit conditions – and borrower fundamentals – weaken further. In private credit, confidence builds slowly, but it can fade quickly when assumptions are challenged.
BDCs and private credit overall have seen significant growth over the last years
Sources: Federal Reserve Board based on Preqin and BDC Collateral via LSEG, as of 5/23/25
* Data for 2024 are as of Q2
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.