Can somebody explain the mark to market methodology in private credit?
At my firm marking assets is a bit of a black box that involves internal discussions where senior members of the team arbitrarily assigning numbers they think make sense. What stops a fund from artificially keeping marks high so that BDC NAV and share price doesn't tank?
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I’m at a private debt fund (non-BDC though) and it’s a bit of a black box too. We mark our portfolio companies each quarter based on a mix of criteria - public and transaction comps, prevailing market yields for companies with similar profiles as well as the portfolio company’s performance. We invest in LMM PE-backed companies, so there is minimal actual “trading” activity in the market.
It’s all claimed to be an objective process but at the end of the day, it really comes down to how the investment team spins it/cherry picks whatever criteria to frame things a certain way. Our auditors sign off on everything at year-end but it’s not in their best interest to push back too hard and risk us switching providers...
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