Three Myths of Private Market Valuations (First of Three Parts)

In our special series last month on why private debt valuations should not be viewed through the same lens as those of public debt (“Glasses Half-Full”), we dug into the various characteristics of illiquid loans that make them particularly attractive in the current market.

Now our friends at Lincoln International have published a timely report on the matter, “Three Myths Regarding Private Market Valuations.” The report sheds further light on how these valuations are determined, and how they are distinguished from their peers in broadly syndicated loans. We spoke this week with Ron Kahn, Lincoln’s head of valuations about their findings:

Ron, your first myth is private valuations should mimic public ones. Why is that view held?

“There’s natural skepticism on why private equity funds are holding their value given this phase of continued market volatility,” he told us. “This gap exists because managers of those funds invest in companies in defensive sectors with consistent and predictable cash flows. The broad public market indices are comprised of more cyclical borrowers with sensitivity to consumer spending or exogenous headline risk.