Key Takeaways
- • Robert Pozen, senior lecturer at MIT Sloan and former Fidelity president, argues that private-credit funds need greater transparency because accounting rules allow loans bought at steep discounts to be marked up to NAV immediately, boosting buyers' reported returns.
- • Pozen cites the $2 to $3 trillion global private-credit market and notes that many funds limit quarterly redemptions to a 5% cap, with redemption requests at two Blue Owl Capital (OWL) funds exceeding 20% of assets at the end of Q1 2026.
- • The practice relies on ASC 820's "exit price" definition and the NAV "practical expedient," which Pozen says should not apply when a buyer knows of a contemporaneous transaction at a materially lower price.
- • Pozen calls on the SEC to issue broader guidance requiring disclosure of purchase-price-to-carrying-value differences and independent appraisals for continuation-fund transactions, and calls on FASB to narrow the practical expedient.
- • Pozen references a recent SEC enforcement action against an adviser that sold loans to an affiliated fund, finding violations of fiduciary duty and the Advisers Act antifraud provisions.
Summary
In an opinion piece published by MarketWatch on April 27, 2026, Robert Pozen argues that private-credit funds need greater transparency because current accounting rules allow loans to be marked up immediately after being purchased at a discount. He describes a scenario in which an asset bought for 85 cents on the dollar is immediately carried at 100 cents, a sequence he says occurs regularly across the $2 to $3 trillion global private-credit market.
Pozen explains that private credit, which refers to lending outside banks and public bond markets, was sold to retail investors over the past decade on the promise of returns above stocks and bonds. Unlike public securities, many of these funds allow investors to redeem only once a quarter, subject to a redemption cap of 5% of fund assets. Within the last six months, retail investors have grown concerned that loans to software companies could be displaced by AI coding tools, prompting heavy redemption requests. At the end of the first quarter of 2026, two funds managed by Blue Owl Capital (OWL) received requests exceeding 20% of their assets, according to the article.
To meet redemptions, some funds have sold loans at discounts. Pozen says buyers of these loans, often secondary funds, mark them up to NAV on their own books, which boosts their returns. Buyers rely on ASC 820, which defines fair value as an exit price in an orderly transaction and permits use of NAV as a practical expedient. Pozen questions whether a buyer can claim a transaction is not orderly while also relying on NAV when it knows a contemporaneous sale occurred at a lower price. He also highlights continuation funds, where an older fund sells loans at 85 cents to a successor fund run by the same manager, which then marks them to 100 cents, potentially inflating early returns.
Pozen cites a recent SEC enforcement action against an investment adviser that sold loans to an affiliated fund without assessing changed market conditions between origination and sale, while certifying the loans were acquired at fair value. The SEC found violations of the adviser's fiduciary duty and the antifraud provisions of the Advisers Act. Pozen says this action is helpful but insufficient.
He recommends that the SEC issue broader guidance warning against immediate markups of discounted purchased loans, require advisers to disclose material differences between purchase price and carrying value, and mandate objective valuations by independent appraisers when an adviser is on both sides of a transaction. He also urges the Financial Accounting Standards Board to clarify that the book-value practical expedient should not be used when a buyer knows of a materially different contemporaneous transaction price. Pozen concludes that because retail investors now hold these funds, loan pricing should be more transparent, warning that inflated valuations could lead to significant investor losses when loans mature.
Pozen explains that private credit, which refers to lending outside banks and public bond markets, was sold to retail investors over the past decade on the promise of returns above stocks and bonds. Unlike public securities, many of these funds allow investors to redeem only once a quarter, subject to a redemption cap of 5% of fund assets. Within the last six months, retail investors have grown concerned that loans to software companies could be displaced by AI coding tools, prompting heavy redemption requests. At the end of the first quarter of 2026, two funds managed by Blue Owl Capital (OWL) received requests exceeding 20% of their assets, according to the article.
To meet redemptions, some funds have sold loans at discounts. Pozen says buyers of these loans, often secondary funds, mark them up to NAV on their own books, which boosts their returns. Buyers rely on ASC 820, which defines fair value as an exit price in an orderly transaction and permits use of NAV as a practical expedient. Pozen questions whether a buyer can claim a transaction is not orderly while also relying on NAV when it knows a contemporaneous sale occurred at a lower price. He also highlights continuation funds, where an older fund sells loans at 85 cents to a successor fund run by the same manager, which then marks them to 100 cents, potentially inflating early returns.
Pozen cites a recent SEC enforcement action against an investment adviser that sold loans to an affiliated fund without assessing changed market conditions between origination and sale, while certifying the loans were acquired at fair value. The SEC found violations of the adviser's fiduciary duty and the antifraud provisions of the Advisers Act. Pozen says this action is helpful but insufficient.
He recommends that the SEC issue broader guidance warning against immediate markups of discounted purchased loans, require advisers to disclose material differences between purchase price and carrying value, and mandate objective valuations by independent appraisers when an adviser is on both sides of a transaction. He also urges the Financial Accounting Standards Board to clarify that the book-value practical expedient should not be used when a buyer knows of a materially different contemporaneous transaction price. Pozen concludes that because retail investors now hold these funds, loan pricing should be more transparent, warning that inflated valuations could lead to significant investor losses when loans mature.
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