INSIGHT

Valuation challenges in the expanding private credit market 

James Lichau, Kemp Moyer • December 4, 2025

Services: Business Valuation Services Industries: Financial Services

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Private credit is one of the fastest-growing segments in alternative investments, with assets surpassing $1.7 trillion globally. This market’s explosive growth offers attractive yield opportunities, but also creates a murky landscape where determining true asset values becomes increasingly difficult. Unlike public markets with their constant price discovery mechanisms, private credit operates in shadows where information flows unevenly and comparable are scarce.  

4 valuation challenges in the private credit market 

Fund managers, investors and regulators now grapple with fundamental questions about how these assets should be valued, who should validate those values and what happens when markets turn. This article examines the critical valuation challenges facing private credit participants, explores their underlying causes and presents practical approaches to strengthen valuation practices in this market. 

Understanding the transparency gap 

Private companies operate under fundamentally different disclosure requirements than their public counterparts, creating a significant information divide. While public companies must provide detailed financial statements, regulatory filings and regular updates to shareholders, private borrowers can limit the information they share. This lack of transparency makes it inherently more difficult to assess the true value of private credit investments. 

The information asymmetry between public and private markets creates challenges when trying to apply traditional valuation methods. Analysts valuing private credit often rely on incomplete data sets, requiring them to make more assumptions and apply judgment where concrete information is unavailable. 

Valuation methodologies: subjectivity versus market benchmarks 

Valuing private credit involves significantly more subjective assessment than public market valuations. Without readily available market prices or extensive comparable data, private credit valuations frequently depend on proprietary models, management projections and analyst judgment. This subjective element introduces potential inconsistencies across different holders of the same asset. 

The Bloomberg article “Flawed Valuations Threaten $1.7 Trillion Private Credit Boom” highlights this issue through specific examples. In one case, two different lenders valued the same loan to Magenta Buyer (a cybersecurity company) at dramatically different levels— 79 cents versus 46 cents on the dollar. Such wide discrepancies demonstrate the inherent challenges in achieving consistent valuations across the private credit landscape. 

Conflicts of interest and incentive alignment 

The private credit market structure creates potential conflicts of interest that can impact valuations. Fund managers may have incentives to maintain higher valuations to support performance metrics, management fees or fundraising efforts. This potential misalignment between manager interests and accurate valuations requires robust governance and independent oversight. 

Regulatory bodies have recognized these challenges, with the Securities and Exchange Commission increasing scrutiny on private fund valuation practices. Recent regulatory initiatives push for greater transparency and independent verification of private credit valuations to protect investors and maintain market integrity. 

Market stress and valuation resilience 

Economic uncertainty and market stress can amplify valuation challenges in private credit. Rising interest rates put pressure on borrowers’ ability to service debt, potentially affecting credit quality and underlying valuations. The limited liquidity in private credit markets means valuations may not adjust as quickly as they would in public markets during periods of stress. 

Recent trends showing increased use of payment-in-kind (PIK) provisions, where borrowers can defer interest payments, further complicate valuation assessments. These structures embed additional forward risk that must be properly accounted for in current valuations. 

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Applying reliable valuation frameworks  

Addressing private credit valuation challenges requires a disciplined approach including industry and market information, understanding of applicable valuation methodologies, and defensible support for key inputs and assumptions. For example, regular benchmarking against public market data, when available, can provide critical reference points for private credit valuations, when applied within the proper valuation framework.  

Additionally, data analysis and enhanced due diligence processes can supplement traditional valuation approaches, when materiality or strategic decision making calls for it, helping to uncover risks that might otherwise remain hidden. By incorporating stress testing and scenario analysis, valuation professionals and finance leadership can better account for potential economic changes that might impact credit performance.  

Working with BPM for valuation solutions

Navigating the complex landscape of private credit valuations requires specialized knowledge and greatly benefits from independent perspective. BPM provides a comprehensive approach to navigating valuation challenges, combining deep industry knowledge with rigorous analytical methodologies that ensure unbiased assessments free from conflicts of interest.  

By partnering with BPM, private credit market participants gain access to valuation services built on transparency, consistency and methodological rigor. Their collaborative approach ensures valuations reflect market realities while adhering to applicable accounting and financial reporting standards, giving clients the confidence to navigate valuation challenges with greater certainty in an increasingly complex marketplace. To find out more, contact us.