Growing regulatory scrutiny and rising loan markdowns are pushing private credit managers to rethink how they value illiquid assets. Selin Bucak reports…
Private credit valuations have come under increased scrutiny both from investors and regulators raising concerns on how these are conducted. Over the last month, not only has the Financial Conduct Authority (FCA) in the UK warned about a breakdown in trust, the Department of Justice in the US has opened an investigation into a major business development company (BDC).
Meanwhile, a string of write-downs has exposed how quickly marks on illiquid loans can move under stress. As asset managers push private credit into retail and semi-liquid wrappers, the question of how, and how often, these assets are valued is no longer one the industry can defer.
According to Lora Froud, partner at Macfarlanes, managers are responding by making their valuation processes more transparent and also moving to develop capability to provide daily marks.
“The main trend we see is that managers are further professionalising their valuation process, resulting in valuations that are more frequent, rigorous and transparent,” she says.
Froud cites four drivers: regulatory concern over stale valuations, lower costs from new valuation platforms, the build-out of internal valuation teams hired from third-party providers, and recent price volatility in semi-liquid and open-ended funds.
“Together, these developments provide better capability, increase the accuracy, and lower the cost of setting net asset value (NAV) on a more frequent and rigorous basis,” she explains.
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BlackRock TCP under the spotlight
In May 2026, Bloomberg reported that the US Attorney’s Office for the Southern District of New York (SDNY) is examining how BlackRock TCP Capital, a listed BDC, values its illiquid loan holdings. The probe has been running for several months and has reportedly involved questioning executives. BlackRock has not been accused of wrongdoing, and an active investigation does not necessarily lead to charges. But it has put a spotlight on a long-standing concern that managers can be incentivised to hold loans at inflated values, because both their reported performance and the fees they earn depend on those marks.
This has not been such an issue in closed-end structures, where paper gains carry limited weight because managers only earn their carried interest once assets are realised. But the rise of evergreen vehicles that charge fees off NAV growth has changed the calculus.
In November 2025, SDNY US Attorney Jay Clayton says he was concerned about how firms value private assets, adding that “people should know that the financial regulators and the department are looking at those”.
Elsewhere, MSCI data released in May showed that over 10 per cent of loans held by private credit funds had been written down by half or more, with markdowns at a post-Covid peak. Smaller debt funds are under the most strain, with 13 per cent of their holdings now carried at less than half their face value.
Read more: Semi-liquid structures: the double-edged sword
The semi-liquid pressure point
The semi-liquid and evergreen segment is where the pressure is most visible. According to Froud, funds that use NAV-based subscription and redemption mechanics need a transparent and robust valuation policy to reassure investors that NAV reflects the underlying quality of assets.
As she puts it, “uncertainty around how NAV is set and whether it accurately reflects the quality of underlying assets may lead to price volatility and a higher discount to NAV than seems justified based on just illiquidity”.
The push for more frequent marks is also coming from UK defined contribution pension schemes, which are investing in private credit for the first time, often through unit-linked insurance products that require a daily NAV. According to Froud, managers are already exploring daily shadow NAVs using the same methodology applied to quarterly valuations.
According to Richard Olson, managing director at Alvarez & Marsal’s valuation services team, the move into retail has brought a new dynamic to the asset class.
“The recent rapid expansion in private credit fundraising to include retail investors has brought in an entirely new set of capital sources, but also capital constraints, both from a regulatory perspective and from a logistical capital inflows and outflows perspective,” he says. “You did see it already within the BDCs in the US.”
Olson also adds that the bar is higher for open-ended vehicles like ELTIFs, where retail investor protection adds an extra layer of scrutiny.
“From our standpoint, we view those as higher-risk engagements, and so there’s more scrutiny, more time spent as we go through those analyses,” he explains.
He adds that for certain vehicles the valuations are already daily, but it still only incorporates whatever information is available.
“It’s only as good as the information going in. You’re probably a good deal closer to actual price support if the NAV is constructed and calculated properly,” Olson says.
FCA and Bank of England both looking at valuations
The FCA classified private markets as a supervisory priority in 2025 and, in March, published the findings of its multi-firm review of valuation practices. The review covered 36 managers running roughly £3tn in private assets between them. It flagged valuation committees with little record of how they reached decisions; conflicts of interest mapped only in narrow fee-related terms; valuation teams that were not sufficiently independent from deal teams; and a lack of formal frameworks for re-marking assets between scheduled cycles when something material happens.
According to Froud, the FCA raised specific concerns about whether managers had the requisite expertise and the right composition on valuation and risk committees to ensure effective control, expert challenge and independence. She adds that the FCA found policies on conflicts of interest were “often generic and lack sufficient detail”.
The Bank of England’s second System-Wide Exploratory Scenario (SWES), announced in December 2025, includes valuation practices in scope and is expected to publish findings in early 2027.
According to Froud, “it is difficult to envisage a scenario in which these findings do not prompt calls for greater disclosure”. She adds that any new obligations should be proportionate and should not put the UK at a competitive disadvantage, however.
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What best practice looks like
According to Olson, robust valuation starts with calibration. “You want to start from a set of calibration data points,” he says, pointing to the initial underwriting spread, refinancing events and any new facilities as benchmarks against which subsequent marks can be tested.
The objective, he says, is to “align as many data points internally and externally with the company as possible”, particularly where the same credit is held across multiple funds.
Olson explains that when the same credit sits in two funds with the same manager, valuation teams now look at marks position by position to check they are being treated consistently.
He notes that different marks within a stated range can be justified by waterfall agreements, different information rights or different positions in the capital structure — features that are not always disclosed to the market.
Valuation questions have been most acute for software businesses that can be disrupted by AI.
Mike Beadle, a managing director on the debt advisory team at Alvarez & Marsal, says there is much more scrutiny of AI-affected businesses at entry.
“Being able to help lenders understand why your business is a beneficiary of AI, in a compelling way, is absolutely front of mind for many service businesses,” he says. “Lenders themselves are developing AI toolkits internally to understand the risk they’re taking on across their existing and new investments.”
As private credit moves deeper into retail and pension portfolios, valuations are becoming more important. The challenge for managers now is not only to prove that their marks are accurate, but that investors can trust how they are reached.
