The Global Risks Alliance (GRA)
Private loans have no market price, so funds value them with models and judgement, often quarterly. Valuations move slowly, and investors and supervisors see limited data on borrowers and terms. This page sets out how private credit is valued, where valuation and data gaps hide risk, what disclosure exists, and who decides.
GRA · In development · service level R0
Private credit valuation is the estimation of the fair value of loans that have no market price, using models and judgement. Marks lag public markets, managers face conflicts and investors see limited borrower data. Fund boards, regulators, investors and auditors decide how valuations are governed and relied on.
Where a portfolio's assets sit, and how much of its value is most exposed. Hypothetical assets, not an assessment.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
Valuation and data gaps · Direct lending fund · Quarter 2
| Borrower 12 | 5.9 | 6.0 | 1.8 | Breach |
| Borrower 4 | 5.3 | 6.0 | 1.8 | Tight |
| Borrower 9 | 3.7 | 5.5 | 3.0 | Pass |
| Borrower 15 | 4.1 | 5.75 | 2.3 | Pass |
Opacity and modelling limits. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Level 3 valuations based on models and comparables change less than public prices. In stress, reported values can stay high while public credit falls sharply.
Managers paid on asset values have incentives to mark generously. Independent valuation agents and policies reduce the conflict.
Investors see portfolio summaries, not full borrower data. Supervisors see more but often in aggregate and with lags.
When several funds hold the same loan, their valuations can differ, revealing the judgement involved.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Fair value | The price that would be received to sell an asset in an orderly transaction between market participants. |
| Valuation agent | An independent firm engaged to estimate or review the fair value of assets. |
| Non-accrual | Status of a loan on which the lender stops recognising interest income because payment is doubtful. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Share of assets valued with Level 3 inputs | percent | quarterly | Fund financial statements | OFFICIAL |
| Dispersion of marks for the same loan across funds | percentage points | quarterly | BDC filing comparisons | ESTIMATED |
| Use of independent valuation agents | share of funds | annual | Surveys and disclosures | DECLARED |
| Difference between private marks and public credit indices | percentage points | quarterly | Studies | ESTIMATED |
| Non-accrual loans | percent of portfolio at cost and fair value | quarterly | BDC filings | OFFICIAL |
| Supervisory data coverage of private credit | categorical | periodic | Authority reports | OFFICIAL |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| SEC EDGAR BDC filings | Loan-level fair values and cost bases | Public domain |
| IPEV Valuation Guidelines | Industry valuation guidance | Free to read, IPEV terms |
| SEC rule on good faith determinations of fair value (Rule 2a-5) | Valuation obligations for registered funds and BDCs | Public domain |
| FCA review of private market valuation practices | Supervisory findings on valuation governance | Free, FCA terms |
| IOSCO and FSB reports on private finance | Data gaps and valuation concerns | Free, IOSCO and FSB terms |
Private Credit prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Fund boards and valuation committees | How loans are valued and who provides independent challenge | Valuation policies and comparisons |
| Securities regulators | What valuation governance and disclosure are required | Supervisory reviews and filings |
| Institutional investors | How much to rely on reported values | Mark dispersion and independent valuation |
| Auditors | Whether valuations are reasonable | Model inputs and comparables |
The models, inputs and judgements behind fund valuations.
Whether marks lag changes in borrower conditions and markets.
The roles of managers, independent valuation providers, auditors and investors.
Gaps in aggregate information about exposures, leverage and performance.
Valuation of private loans typically uses discounted cash flow or comparable-market approaches, with inputs such as spreads, borrower performance and recovery assumptions. Many inputs are unobservable and require judgement.
Smoothing is a known feature. Appraisal-based valuations tend to change more slowly than market prices, which can make returns appear less volatile and correlations with public markets appear lower than they are.
Conflicts can arise when managers value assets on which their fees and performance depend. Independent valuation, governance and audit mitigate this but do not remove judgement.
Aggregate data gaps limit system-wide analysis. Without consistent data on exposures, leverage and links to banks and insurers, it is hard to judge how stress would spread.
Different valuation of the same loan by different holders can create inconsistencies and disputes, particularly in secondary transactions or when loans move between vehicles, and can make it hard for investors to compare performance across managers.
| Method or data | What it shows | Its limit |
|---|---|---|
| Fund valuation policies | Methods used | Practices vary |
| Comparison with public markets | Valuation lags | Imperfect comparables |
| Secondary transactions | Observed prices for private assets | Sparse and selective |
| Regulatory filings | Aggregate exposures | Coverage differs by jurisdiction |
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.