When it comes to valuations, private markets get more benefit of the doubt than public ones and stands to benefit from a healthier number. A stated NAV is a manager’s judgement call, made periodically by the same party that raised the capital, and it's set to benefit from a healthier number. That is the trade-off of investing in something nobody prices every day. The question is not whether that structure is legitimate, but how far one can trust a given number at any particular moment.

This year, John Zito, co-president of Apollo's asset management arm, told UBS clients something private credit executives don't usually say about their own industry: "I literally think all the marks are wrong." He predicted that loans to a typical mid-sized software company could recover as little as 20 to 40 cents on the dollar if things turned. Apollo later said the comment was specifically about software valuations, where the firm has minimal exposure.

Whilst outside critics have made this argument for years, this statement hit differently because of who said it. Hearing a senior executive say publicly what LPs have largely only said among themselves gave the argument considerably more weight.

The numbers then started to catch up with the opinion. FS KKR Capital, a publicly traded BDC managed by KKR, posted a 9.9% net asset value decline in a single quarter, a $441 million net loss, and rising non-accruals. KKR had to step in with a $150 million convertible preferred investment and a tender offer just to steady the stock.

Despite this, neither event proves that private markets are ‘broken’. Taken together, however, they allow us to zoom out and recognise a broader pattern. And that pattern is a gap.

Whoever holds a private asset is usually the one pricing it, too. Public markets have thousands of buyers and sellers with differing incentives, pricing continuously. Private holdings get priced periodically, by the manager who raised the money, using models and tools that leave room for judgement. That’s not incompetence; it’s just how it goes. The number then lands weeks after the period it’s supposed to describe. This process works well until the assumptions underneath it stop matching reality.

If you want to see the scepticism priced in, look at what buyers will actually pay. The BDC universe trades at roughly a 20% average discount to NAV right now. Individual names show how wide that range gets: TriplePoint Venture Growth at a 28.1% discount, Runway Growth Finance at 41%, and Prospect Capital at 57.2%, all straight from their own SEC filings. In February, Saba Capital and Cox Capital went further and launched unsolicited tender offers for three Blue Owl-managed BDCs at a 20-35% discount to NAV. The Blue Owl Capital Corporation II offer ultimately priced at 33.2%, and the board rejected it as too low. Whoever's right about that particular fight, the pricing itself shows a real, money-on-the-table gap between what a manager says an asset is worth and what someone will actually pay for it.

Not every private valuation deserves the same suspicion, and treating them all that way would be a mistake. A five-year-old industrial services business in a boring, stable sector earns more benefit of the doubt than a two-year-old software bet in a category where public comparables have already fallen off a cliff. Vintage matters. Sector matters. But so does how recently the position was actually tested by a real transaction, rather than just marked on a schedule.

An investor relying entirely on a quarterly mark, with no independent visibility into the business itself, is trusting one number from one interested party. Co-investing directly alongside a manager changes that, because it comes with governance rights, a seat at the table, and access to operating data between reporting periods, not just a NAV figure without context.

That access doesn't replace proper valuation discipline, but it does give an investor their own basis for judging whether a mark still reflects the business as it exists today, rather than as it existed the last time someone formally wrote it down.

Private market valuation lag isn't evidence of bad faith. It's just what happens when you invest in something that isn't traded every day. What Zito's comments and FS KKR's quarter add isn't a new argument; it's the industry itself confirming an old one, for once, instead of leaving it to the critics.

The implication is not to distrust every number, but to ask how it was arrived at in the first place. Would it survive being tested by a real sale today rather than a valuation written months in advance? That’s the key question to keep in mind.