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Episode 36: Private Credit: Navigating Bumps in the Road
In this episode of Investment Wars, Episode 36, sponsored by Obsidian CIO, host Joe Halpern (Managing Partner and CIO of Obsidian CIO) sits down with Robert Grunewald — a 30-year veteran of middle market finance — to deliver a ground-up education on private credit and direct lending.
Private credit has been making negative headlines as of late. Investors are asking hard questions about valuations, covenants, defaults, and whether the risks are fully understood. This episode goes beyond the headlines, walking through how these deals actually work from origination to exit, and having an honest conversation about where the real risks and opportunities lie.
Key Topics Covered:
• How Direct Lending Works: A real-world deal walkthrough of a Texas metal plate rental company, how equity and debt are structured, what happens when a loan goes bad, and why first lien senior secured debt is fundamentally different from what imploded in 2008.
• The PE Buyout Engine: Why 70–80% of direct lending is PE-sponsored, how add-on acquisitions generate repeat lending opportunities, and how private equity incentives may actually protect lenders.
• The Vehicle Landscape: Public BDCs, private BDCs, interval funds, institutional separately managed accounts, and CLOs — how a single loan gets distributed across vehicles and why over half of all private credit loans end up in CLOs.
• Size of Market & Covenant Risk: The $1.5 trillion private credit market, how rapid asset gathering by mega-managers has softened covenant protections, and why that matters for returns and downside protection.
• The 2022 Vintage Problem: Why loans originated just before the rate hiking cycle have seen elevated losses, and how vintage diversification protects a portfolio.
• Software Exposure & AI Disruption: Software is roughly 25% of the private credit market. Equity values are down ~25%; debt has moved from par to ~90 cents. How to think about concentration risk and why first lien positioning still provides meaningful protection.
• Default Rate Reality: Default rates spiked from ~2% to ~5% but are now tracking back toward 3%. Why long-term investors should expect this volatility and not confuse cyclical stress with structural impairment.
• The Illiquidity Premium: Private credit can offer 300+ basis points over publicly traded high yield. How to think about the return tradeoff, proper portfolio sizing, and realistic liquidity expectations.
Subscribe to Investment Wars on YouTube, Apple Podcasts, and Spotify to ensure you never miss an episode.
If you are a financial advisor interested in partnering with Obsidian CIO or would like to suggest a future guest, reach out at [email protected].
--
IMPORTANT DISCLOSURE: Obsidian CIO sponsors the podcast to further education and critical thinking about the factors that affect markets and investing. The podcast does not provide investment advice. Investment advice is offered only to clients of Obsidian CIO who have entered into an advisory agreement and with whom Obsidian CIO has identified individual objectives, risk tolerance, and other investment needs.
Private credit has been making negative headlines as of late. Investors are asking hard questions about valuations, covenants, defaults, and whether the risks are fully understood. This episode goes beyond the headlines, walking through how these deals actually work from origination to exit, and having an honest conversation about where the real risks and opportunities lie.
Key Topics Covered:
• How Direct Lending Works: A real-world deal walkthrough of a Texas metal plate rental company, how equity and debt are structured, what happens when a loan goes bad, and why first lien senior secured debt is fundamentally different from what imploded in 2008.
• The PE Buyout Engine: Why 70–80% of direct lending is PE-sponsored, how add-on acquisitions generate repeat lending opportunities, and how private equity incentives may actually protect lenders.
• The Vehicle Landscape: Public BDCs, private BDCs, interval funds, institutional separately managed accounts, and CLOs — how a single loan gets distributed across vehicles and why over half of all private credit loans end up in CLOs.
• Size of Market & Covenant Risk: The $1.5 trillion private credit market, how rapid asset gathering by mega-managers has softened covenant protections, and why that matters for returns and downside protection.
• The 2022 Vintage Problem: Why loans originated just before the rate hiking cycle have seen elevated losses, and how vintage diversification protects a portfolio.
• Software Exposure & AI Disruption: Software is roughly 25% of the private credit market. Equity values are down ~25%; debt has moved from par to ~90 cents. How to think about concentration risk and why first lien positioning still provides meaningful protection.
• Default Rate Reality: Default rates spiked from ~2% to ~5% but are now tracking back toward 3%. Why long-term investors should expect this volatility and not confuse cyclical stress with structural impairment.
• The Illiquidity Premium: Private credit can offer 300+ basis points over publicly traded high yield. How to think about the return tradeoff, proper portfolio sizing, and realistic liquidity expectations.
Subscribe to Investment Wars on YouTube, Apple Podcasts, and Spotify to ensure you never miss an episode.
If you are a financial advisor interested in partnering with Obsidian CIO or would like to suggest a future guest, reach out at [email protected].
--
IMPORTANT DISCLOSURE: Obsidian CIO sponsors the podcast to further education and critical thinking about the factors that affect markets and investing. The podcast does not provide investment advice. Investment advice is offered only to clients of Obsidian CIO who have entered into an advisory agreement and with whom Obsidian CIO has identified individual objectives, risk tolerance, and other investment needs.
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By Obsidian CIOIn this episode of Investment Wars, Episode 36, sponsored by Obsidian CIO, host Joe Halpern (Managing Partner and CIO of Obsidian CIO) sits down with Robert Grunewald — a 30-year veteran of middle market finance — to deliver a ground-up education on private credit and direct lending.
Private credit has been making negative headlines as of late. Investors are asking hard questions about valuations, covenants, defaults, and whether the risks are fully understood. This episode goes beyond the headlines, walking through how these deals actually work from origination to exit, and having an honest conversation about where the real risks and opportunities lie.
Key Topics Covered:
• How Direct Lending Works: A real-world deal walkthrough of a Texas metal plate rental company, how equity and debt are structured, what happens when a loan goes bad, and why first lien senior secured debt is fundamentally different from what imploded in 2008.
• The PE Buyout Engine: Why 70–80% of direct lending is PE-sponsored, how add-on acquisitions generate repeat lending opportunities, and how private equity incentives may actually protect lenders.
• The Vehicle Landscape: Public BDCs, private BDCs, interval funds, institutional separately managed accounts, and CLOs — how a single loan gets distributed across vehicles and why over half of all private credit loans end up in CLOs.
• Size of Market & Covenant Risk: The $1.5 trillion private credit market, how rapid asset gathering by mega-managers has softened covenant protections, and why that matters for returns and downside protection.
• The 2022 Vintage Problem: Why loans originated just before the rate hiking cycle have seen elevated losses, and how vintage diversification protects a portfolio.
• Software Exposure & AI Disruption: Software is roughly 25% of the private credit market. Equity values are down ~25%; debt has moved from par to ~90 cents. How to think about concentration risk and why first lien positioning still provides meaningful protection.
• Default Rate Reality: Default rates spiked from ~2% to ~5% but are now tracking back toward 3%. Why long-term investors should expect this volatility and not confuse cyclical stress with structural impairment.
• The Illiquidity Premium: Private credit can offer 300+ basis points over publicly traded high yield. How to think about the return tradeoff, proper portfolio sizing, and realistic liquidity expectations.
Subscribe to Investment Wars on YouTube, Apple Podcasts, and Spotify to ensure you never miss an episode.
If you are a financial advisor interested in partnering with Obsidian CIO or would like to suggest a future guest, reach out at [email protected].
--
IMPORTANT DISCLOSURE: Obsidian CIO sponsors the podcast to further education and critical thinking about the factors that affect markets and investing. The podcast does not provide investment advice. Investment advice is offered only to clients of Obsidian CIO who have entered into an advisory agreement and with whom Obsidian CIO has identified individual objectives, risk tolerance, and other investment needs.
Private credit has been making negative headlines as of late. Investors are asking hard questions about valuations, covenants, defaults, and whether the risks are fully understood. This episode goes beyond the headlines, walking through how these deals actually work from origination to exit, and having an honest conversation about where the real risks and opportunities lie.
Key Topics Covered:
• How Direct Lending Works: A real-world deal walkthrough of a Texas metal plate rental company, how equity and debt are structured, what happens when a loan goes bad, and why first lien senior secured debt is fundamentally different from what imploded in 2008.
• The PE Buyout Engine: Why 70–80% of direct lending is PE-sponsored, how add-on acquisitions generate repeat lending opportunities, and how private equity incentives may actually protect lenders.
• The Vehicle Landscape: Public BDCs, private BDCs, interval funds, institutional separately managed accounts, and CLOs — how a single loan gets distributed across vehicles and why over half of all private credit loans end up in CLOs.
• Size of Market & Covenant Risk: The $1.5 trillion private credit market, how rapid asset gathering by mega-managers has softened covenant protections, and why that matters for returns and downside protection.
• The 2022 Vintage Problem: Why loans originated just before the rate hiking cycle have seen elevated losses, and how vintage diversification protects a portfolio.
• Software Exposure & AI Disruption: Software is roughly 25% of the private credit market. Equity values are down ~25%; debt has moved from par to ~90 cents. How to think about concentration risk and why first lien positioning still provides meaningful protection.
• Default Rate Reality: Default rates spiked from ~2% to ~5% but are now tracking back toward 3%. Why long-term investors should expect this volatility and not confuse cyclical stress with structural impairment.
• The Illiquidity Premium: Private credit can offer 300+ basis points over publicly traded high yield. How to think about the return tradeoff, proper portfolio sizing, and realistic liquidity expectations.
Subscribe to Investment Wars on YouTube, Apple Podcasts, and Spotify to ensure you never miss an episode.
If you are a financial advisor interested in partnering with Obsidian CIO or would like to suggest a future guest, reach out at [email protected].
--
IMPORTANT DISCLOSURE: Obsidian CIO sponsors the podcast to further education and critical thinking about the factors that affect markets and investing. The podcast does not provide investment advice. Investment advice is offered only to clients of Obsidian CIO who have entered into an advisory agreement and with whom Obsidian CIO has identified individual objectives, risk tolerance, and other investment needs.