Private credit markets are facing a stale pricing problem that's testing investor confidence, with opaque valuations and concentrated exposures to software companies creating new risks. James Grant's observation that finance is cyclical rather than cumulative rings true as investors grapple with outdated net asset values that can exacerbate redemptions during market stress.

Some 26 per cent of private credit focused BDC portfolios are invested in software and services companies, according to Morgan Stanley Research, compared to just 3 per cent in the US High Yield index. These loans, struck BC (Before Claude), are now under pressure as AI tools threaten the sector's earnings, particularly for 2021 vintage deals made during the zero-rate era. Investors are reassessing positions, with some seeking redemptions.

Several major firms including Ares, Apollo, BlackRock's HPS, Morgan Stanley, Cliffwater, Blue Owl and Blackstone have implemented gating provisions to limit redemptions. The solution appears straightforward: more frequent NAV reporting would reduce first-mover advantages and give managers better ability to sell assets at appropriate levels. While most headlines focus on non-investment-grade debt, 43 per cent of the largest private credit companies' activity serves insurance companies with investment-grade products. The fundamentals of credit investing—disciplined underwriting, diversification and prudent risk management—remain as crucial as ever.