Larry Swedroe on Substack

Private Credit Defaults

The episode dissects private‑credit defaults, arguing that most defaults are driven by borrower‑specific (idiosyncratic) factors rather than systemic risk, which the media often exaggerates for clicks. Data from the Cliffwater Direct Lending Index shows realized losses remain well below historic averages and unrealized losses are near zero, indicating sound loan valuation practices. The host outlines four risk layers—borrower, industry, manager, and recession—and stresses diversification across borrowers, sectors, and managers, recommending open‑architecture funds. A case study of BlackRock’s BDC illustrates how higher leverage and subordinated structures can amplify losses, while BDC price discounts proved a better early warning of manager‑specific issues than of market‑wide turmoil.