Phil Huber

@UncleChaps This was 7:30 am

Lots of hullabaloo about TSA lines. Here’s Ohare at 6am today

Absolute chaos at O’Hare this morning

@bpmoriarty I’m sorry sir, but this is way too level-headed for twitter

A lot of ink (and angry tweets) has been spent on private credit and semiliquid funds recently, and in the deluge I think a few basic facts have been forgotten or ignored:

@DanRusso_CMT Sorry for your loss Dan

Rest well my Lola Bear! We will miss you!

“There are decades where nothing happens; and there are weeks where decades happen.”

@BackupHangman A third match w/ Roman would have only made sense w/ Cody going over again and turning heel in the process. Not other outcome would have benefitted either guy.

Drew’s title reign existed to save Cody Rhodes from jobbing to Roman Reigns at WrestleMania. I told everybody this in early January, and it remains true now.

Ok, I’ll bite. 1. Not sure why it's necessary to impugn those with “letters behind their name” – who actually bear the great responsibility of managing other people’s money – as if disagreement with your points below somehow violates their duty as charterholders. 2. Allocations to private credit in the wealth channel typically range between 5-10% of the overall portfolio. Not sure it’s the best and highest use of an advisor’s time attempting to arb BDC discounts for a relatively modest portion of their clients’ assets. 3. To that point, many will avoid the trade you describe now for the same reason they avoided listed BDCs in the first place (when discounts were narrower) – they have independently reached the conclusion they prefer other structures for obtaining their desired exposure to the asset class that can provide lower fees, less leverage, and more diversification. 4. I would argue the primary portfolio objective for private credit investors is high current income, not capital appreciation. For long-term strategic allocators, why introduce the brain damage of continuously rotating between listed BDC and evergreen vehicles based on sentiment-driven discount dynamics? Successful outcomes can be achieved w/o playing that game. 5. Lastly, “defaults existing” ≠ problems in private credit. Defaults have averaged ~2% over the last 20+ years. With ~10k middle market borrowers and another 1.4k BSL credits, one should expect more than 200 defaults a year. Not every failed borrower is a harbinger of the next GFC, no matter how much the anti-PC crowd desperately wants it to be.

@davis_greene @EricBalchunas The Substack newsletters won't sell themselves!

@bpsandpieces @EricBalchunas 💯 It’s too bad that we dont have more thoughtful discourse about the asset class.

Genuine Q for private credit invs out there: what are you getting for your portfolio with PC that you can't get with an IG or HY ETF that is so worthwhile that you'd risk having your money frozen up or some of the holdings being marked to zero (which also recently happened)?

@davis_greene @EricBalchunas Great points, don't disagree. Was more referring to reducing portfolio level impact of a failed loan, but all are important to successful outcomes in the asset class

@bpsandpieces @EricBalchunas I would argue that having control rights, underwriting and covenants are the primary risk mitigants. Diversification is secondary and given where you sit it’s understandable that you elevate it.

@ChrisRondinelli @EricBalchunas Less about default rates, more due to HY being subordinate to senior secured in cap stack and thus lower recoveries, which has led to higher realized credit losses (marginally)

@bpsandpieces @EricBalchunas Great summary. Why would we expect PC to have lower default than HY? Seems to violate risk & return. With the popularity of PC, are we seeing yields bid down?

@shortbus_ace Different experiences I guess

@bpsandpieces the majority of advisors are absolutely not communicating the risks of illiquidity in my experience in the HNW space

Kieran is entitled to his opinion on this, but having sat on both sides of the table I can say this type of behavior is the rare exception, not the norm. If anything, I would say most advisors over-communicate the underlying liquidity terms bc a) they’re fiduciaries and b) they want to minimize potential litigation risk if terms not properly disclosed and communicated Similarly, in my days as an allocator/CIO I don’t feel I was aggressively marketed to or that the fine print was “glossed over” by an asset manager

@JulianKlymochko Funny how quickly UBS’s “worst case” scenario became the anti-PC doomers’ base case

The thing is, the current secondary market prices of liquid private credit vehicles (BDCs) are implying a default rate north of 20%, far in excess of anything experienced during the GFC and greater than UBS’s draconian “worst case” scenario

@BullandBaird Wait, they let charlatans on here??

I’ve signed up to be able to do community notes. I’m coming after the charlatans.

@markcecchini Endorse

parent PSA these nuggets are honestly better than Chick Fil A pop them in the air fryer, leave them little bit longer than the instructions say money every time

The CEO burger videos will continue until morale improves

@RyanDetrick I’ll be there Monday!

Name a better 🥩. You can't.

Welcome to The Paper Trail, a monthly curation of the best investment research I can find. February’s edition features: 📉 Market peaks and drawdowns 🔍 Software due diligence in the age of AI 🪜 Private equity value creation 🏷️ Factors influencing pricing in LP-led secondaries 🌱 The case for emerging managers 📋 Underwriting discipline in private credit 🔩 Defining the U.S. middle market 🛒 Finding bargains in real estate 📐 Performance measurement of evergreen funds 🔮 Base rates and growth assumptions 🌐 Modern-day conglomerates ⚖️ Portfolio effects of equity market concentration 🧩 Holistic allocation vs. asset-class silos 🧮 The new math of private equity (🔗 in replies)