Financial media loves a dramatic narrative. A $150 million loss. A loan that went from par to zero in weeks. A high-profile bankruptcy that contradicts manager claims of disciplined underwriting. These stories generate clicks, shares, and commentary.
They also often miss context. Not to excuse poor outcomes—losses should be scrutinized, and some reflect genuine failures of underwriting or monitoring. But understanding the actual portfolio impact matters more than headline shock value. And placing individual losses within the context of overall portfolio performance is essential for informed decision making.
The Portfolio Math
Consider a $150 million loss in a single position. Dramatic? Certainly. Consequential? It depends.
In a $2 billion fund, a $150 million loss represents 7.5% of committed capital. That's painful. It will meaningfully impact fund returns. It warrants serious scrutiny.
In a $20 billion fund, the same loss represents 0.75% of committed capital. Still unwelcome, but unlikely to derail overall fund performance if the rest of the portfolio performs.
In a $20 billion platform with multiple funds, the portfolio-level impact is even more diluted.
The headline "100 percent write-down" sells more clicks than "sub-one-percent loss at the portfolio level." No one would repost a headline reading "$150 million loan loss results in less than one percent portfolio impact." That's just not sensational.
This isn't about excusing losses. It's about applying the right analytical framework. Individual position losses are data points, not verdicts.
What Actually Warrants Scrutiny
Some aspects of recent high-profile losses do warrant attention.
Valuation practices. When a loan moves from par marks to zero in a matter of weeks, questions about valuation practices are legitimate. If a position was held at par weeks before a bankruptcy filing, either conditions deteriorated with exceptional speed or marks lagged reality. Both scenarios raise questions.
Communication between sponsors and lenders. Sponsors typically have better real-time visibility into portfolio company performance than lenders. When material adverse developments occur, timely communication allows lenders to prepare. Surprises suggest communication breakdowns.
Patterns over individual events. A single loss can reflect idiosyncratic circumstances: fraud, sudden market shifts, unforeseen events. Multiple losses in similar circumstances suggest systemic issues in underwriting or monitoring.
The Certainty Problem
A useful reminder: no investor can ever be 100 percent certain that nothing is wrong with any investment. Shareholders and bondholders cannot be fully certain about what's happening inside public companies either. Absolute certainty is always impossible.
The question isn't whether losses will occur—they will, in any credit portfolio. The questions are: Does due diligence catch problems that can be identified? Does portfolio construction limit the impact of individual losses? Does manager selection favor those with genuine workout capabilities?
Tip
Private credit investors who expect zero losses are investing in the wrong asset class. Those who demand appropriate risk-adjusted returns, adequate diversification, and capable workout execution have reasonable expectations.
The Bottom Line
Headlines optimize for shock value, not analytical rigor. A $150 million loss sounds catastrophic in isolation. Portfolio context, management track record, and recovery prospects matter more than the headline number. Scrutiny is appropriate—losses should be understood and lessons extracted. But perspective is equally important. The goal of credit investing isn't to avoid all losses; it's to generate returns that compensate for the losses that inevitably occur.