“It simply isn’t as great an investment as it once was.” That’s how Miriam Gottfried of The Wall Street Journal describes Chad Hileman’s view on private credit when he, and his employer Gibson Capital, began attempting to pull their clients’ money from private credit funds. Hileman began noticing a problem in private credit around the end of 2024. Gottfried writes:
Around the end of 2024, Hileman noticed something else. Private-equity deal volume was lagging behind even though there was now a flood of capital to finance such deals.
Hileman figured the need to invest all that capital would cause private-credit firms to make loans that offered their investors lower returns and came with fewer protections, known as covenants.
A few months later, while looking back at Cliffwater’s securities filings, one discovery gave him pause. One of its loans was listed on June 30, 2024 as having a maturity date that had passed more than two weeks earlier. The roughly $20 million loan to Afiniti, a Bermuda-based company making AI-powered software for customer call centers, was marked at 99% of cost, even though it appeared the company had failed to pay it off.
In the next quarterly filing, the loan’s stated maturity date was updated, but the value of the loan had barely budged. By the end of 2024, there were two loans listed for the company with a maturity date years in the future. These new loans were similarly marked at close to cost.
Afiniti, Hileman learned, had filed for Chapter 15 bankruptcy protection that November and restructured its debt without the firm marking down the loan.
Hileman’s withdrawal from the Cliffwater fund was early and granted in its entirety, but soon after, many other investors attempted to withdraw their money, and those redemptions were limited.
Action Line: Can 401(k) investors be expected to fully comprehend and manage private equity and credit in their portfolios? When you want help rolling over your 401(k) to an IRA, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
Read the entire series here.
