"Private credit bubble" has become one of the most frequently invoked phrases on the conference circuit, in financial media, and in allocator conversations. The narrative oscillates between dire warnings of systemic risk and dismissive assurances that everything is fine. Neither extreme is particularly useful for investors trying to make informed decisions.
Before accepting or rejecting the bubble thesis, it's worth stepping back and examining what market pricing actually reveals. BDCs—publicly traded vehicles that invest in middle market loans—offer an imperfect but instructive window into how the market values direct lending assets. While BDCs don't perfectly mirror the private direct lending market, the resemblance is close enough to extract meaningful signal.
What the Data Shows
Recent analysis of BDC price-to-NAV ratios across a sample of vehicles reveals striking and persistent dispersion. Ratios range from above 1.3x to nearly 0.5x. Three vehicles have averaged ratios greater than 1.0x from Q4 2021 through Q3 2025. Two have traded in the 0.9x to 1.0x range. One has averaged just 0.7x. The remaining vehicles have clustered in the 0.8x to 0.9x range.
This isn't a snapshot; it's a pattern that has persisted for years. Some vehicles saw price-to-NAV increases in Q3 2025. Others saw declines in the same quarter. The market is not treating these vehicles as interchangeable.
This persistent dispersion is most plausibly explained in one of two ways.
The first explanation: all the underlying assets are roughly the same quality, and the market has been consistently fooled for years. Under this view, the market cannot distinguish good lenders from bad, skilled underwriters from reckless ones. If this is true, then claims of a bubble have a foundation. Direct lending assets are universally overvalued, and the market simply hasn't figured it out yet. The strongest argument for a bubble is that the market has been wrong for three or four years running.
The second explanation: the market is astute and has correctly identified which lenders are skilled and which are not. Under this view, the dispersion reflects genuine differences in portfolio quality, underwriting discipline, and workout capabilities. Some lenders are weak and others are making good, resilient loans. The market recognizes this and prices accordingly.
The Implications for Bubble Analysis
If you believe the market can be fooled consistently over extended periods, the bubble thesis gains credibility. But that's a significant assumption. Markets are imperfect, but multi-year mispricings of this magnitude—in a sector with substantial institutional scrutiny—would be unusual.
Alternatively, if you believe the market can differentiate among assets and managers, then perhaps bubble fears are overblown. What we're observing isn't uniform overvaluation but rather manager differentiation playing out in market prices.
This reframes the bubble question. Perhaps the market is saying less about the assets themselves and more about the managers behind them. Bubble pressure may be mitigated by managers' structuring and managing of proprietary assets, which are less vulnerable to contagion and herding than widely held securities.
In the tulip bubble, every tulip of the same variety was identical and fungible. In the dotcom bubble, shares of the same company were interchangeable. But in private credit, a loan is a negotiated contract, not a fungible commodity. A loan originated by Manager A is not the same as a loan originated by Manager B, even if both are first lien senior secured facilities to middle market companies. Documents differ. Covenants differ. Monitoring intensity differs. Workout capabilities differ. Pricing may be similar, but everything else can vary substantially.
The Bottom Line
The bubble question cannot be answered by looking at aggregate metrics alone. The dispersion in BDC valuations suggests the market is distinguishing between managers, not treating private credit as a monolithic asset class. This doesn't mean problems won't emerge—they will, and are. But it suggests that "bubble" may be the wrong frame. What we may be observing instead is the market correctly identifying that manager selection matters enormously, and that investors who chose poorly will suffer while those who chose well will be rewarded. That's not a bubble. That's credit investing.
Source: BDC price-to-NAV analysis based on public filings for a sample of 10 vehicles, Q4 2021 through Q3 2025.