By Bill Enszer, President 

A recent article in the Wall Street Journal, “When Your Private Fund Turns $1 Into 60 Cents,” explores what happens when private-market funds holding loans and other illiquid assets are abruptly subjected to market-based price discovery. After years of reporting steady NAVs, several funds began trading publicly at sharp discounts, shaking confidence among retail investors who had come to view private loans as a stable, low-volatility asset class. What changed was not the assets themselves, but the transparency with which they were priced.

One of the more seductive promises in modern investing is the idea that you can earn higher yields and enjoy smoother returns simply by moving assets from public markets into private ones. This article offers a timely reminder that this promise often rests on a misunderstanding of how risk is revealed, not how it is reduced.

A critical clarification is needed at the outset. Net asset values did not suddenly collapse. The underlying NAVs remained largely unchanged. What changed was the mechanism of price discovery. Assets that had long been valued at manager-determined NAVs were, in a single moment, exposed to market pricing. The market did not rewrite history. It simply expressed a view that had previously been unavailable.

That distinction matters, especially in private credit.

There is a growing tendency for investors to conflate stable reported NAVs with lower risk. But volatility does not disappear simply because assets are illiquid or marked quarterly. It becomes latent. A private credit fund that reports a steady NAV every three months has not eliminated risk. It has deferred its recognition.

Publicly traded vehicles, such as business development companies (BDCs), often appear more volatile by comparison. Prices move daily. Discounts widen and narrow. But this volatility is not evidence of greater risk. It is evidence of continuous transparency. Public markets incorporate new information in real time, reflecting changes in credit conditions, leverage, liquidity, and investor sentiment.

What the recent repricings also reveal is something more subtle, and perhaps more important: the fragility of expected outperformance. Many investors entered these structures not merely for income, but with the belief that private markets would deliver superior returns with less drama. In several cases, years of incremental excess return, if it existed at all, was effectively erased in a single trading session once market pricing was introduced.

This is not an argument against private credit. It is an argument against confusing structure with skill, and confusing lower volatility of reported returns with investments that actually have lower risk.

At Segment, we believe simplicity is a discipline. Transparency is not a concession. It is a safeguard. Private credit can play a role in a well-constructed portfolio, but only when investors understand how assets are valued, how liquidity is provided, and what risks are being masked by design rather than mitigated by fundamentals.

A quarterly NAV does not suppress volatility. It suppresses visibility.

And when visibility finally arrives, the market has a way of speaking very clearly, and very quickly.

By Bill Enszer, President

Please see IMPORTANT DISCLOSURE information.