The BlackRock TCPC Story

Last Friday’s SEC filing from BlackRock TCPC sent shockwaves through financial media. A 19% quarter-over-quarter NAV decline at a public Business Development Company (BDC) naturally raises eyebrows. Headlines quickly morphed this into a broader indictment of private credit markets. But a closer examination reveals something quite different: this is a story about concentration risk and capital structure positioning, not a systemic failure of private lending.

What Actually Happened

BlackRock TCPC disclosed that the majority of its NAV losses stemmed from just six positions—representing 15.6% of the fund’s NAV. These weren’t randomly distributed across a diversified portfolio. Rather, they reflected specific risk decisions that amplified losses:

The Capital Structure Problem: Approximately 80% of the exposure in these troubled positions was in second lien loans and equity, with only 20% in first lien loans. This matters enormously. First lien lenders sit at the top of the capital structure with priority claims on assets. Second lien and equity holders absorb losses first when companies struggle. In contrast Cliffwater’s Corporate Lending Fund (CCLFX), my choice for allocating to private credit) has about 96% of its holding in first lien positions. In addition:

· 98% of the loans are floating rate (minimizing inflation/duration risk)

· The average loan-to-value was just 41%, adding a margin of safety

· 97% of the loans are made to borrowers sponsored by private equity

· Loans are made to profitable companies with the average (median) EBITDA (earnings before interest, taxes, depreciation, and amortization) of $106.3 million ($71.9 million)

· At 0.35x the fund’s use of leverage is only about one-half of that of lenders in the Cliffwater Direct Lending Index (CDLI)

The Valuation Volatility Issue: TCPC had previously marked up one equity position by over 1,250%. Equity valuations in private companies can swing wildly based on optimistic projections or funding rounds. When reality disappoints, the snapback is severe. This is fundamentally different from senior secured debt, where recovery expectations are anchored to tangible asset values and contractual priorities.

The Concentration Risk: Six positions drove most of a 19% portfolio decline. This speaks to insufficient diversification and oversized conviction bets that didn’t pay off. In contrast, CCLFX had about 5% in its 10 largest holdings.

The Consumer Exposure: TCPC carried substantial consumer-facing risk at a time when consumer health has become increasingly uncertain.

What This Isn’t

This isn’t a failure of private credit broadly. Consider: TCPC’s problematic first lien loans represent just 0.01% of the entire BDC universe. The overlapping exposure with more conservatively positioned funds like CCLFX totals merely 0.10% of NAV—and even that exposure is exclusively to first lien positions likely to see the most modest losses.

The broader private credit market has built its reputation on senior secured lending to middle-market companies—first lien positions with strong covenants, collateral protection, and meaningful equity cushions below. TCPC’s losses came primarily from positions further down the capital structure where risk and volatility are exponentially higher.

The Media’s Incentive Problem

Financial media thrives on crisis narratives. “Private Credit in Turmoil” generates more clicks than “One BDC’s Concentrated Equity Bets Go Sideways.” This incentive structure means nuance gets sacrificed for drama. Readers deserve better.

The distinction between first lien lending and equity/mezzanine exposure isn’t semantic hairsplitting—it’s fundamental to understanding risk and expected returns. Conflating them does a disservice to investors trying to make informed decisions.

Lessons for Investors

TCPC’s troubles reinforce several timeless investment principles:

Diversification matters. Concentrated portfolios amplify both gains and losses. Six positions shouldn’t determine a portfolio’s fate.

Capital structure positioning matters. First lien lenders and equity holders are playing fundamentally different games with different risk/return profiles.

Valuation discipline matters. Marking up equity positions by 1,250% should raise questions about whether enthusiasm has overtaken prudence.

Due diligence matters. Understanding what you own—and where it sits in the capital structure—is essential. Not all “private credit” exposures are created equal.

For investors in diversified, senior-focused private credit strategies, TCPC’s experience should prompt questions for their managers about concentration limits, capital structure positioning, and valuation discipline. But it shouldn’t prompt panic about the asset class.

Private credit has grown rapidly, and rapid growth always brings risks. But those risks are best understood through careful analysis of individual strategies and portfolios, not through breathless headlines that obscure more than they illuminate.

The story here is one fund’s specific challenges, not an industry in crisis. Investors who understand that distinction are better positioned to navigate markets rationally—and to separate signal from noise in an increasingly noisy media environment.

Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future.