Very nice article. I totally agree with the following…..”The non-traded BDC was designed to solve a distribution problem for asset managers, not a liquidity problem for investors.”
That’s essentially a bank run without a backstop. The only rational decision for an investor is to join the run; otherwise, you are left with worthless assets, and because there are senior creditors ahead of you, you could end up with nothing.
I wrote something like this at Aleph Blog on a more general basis to help people understand how bad a credit problem is. Summarizing: Those that don't have big problems in credit crisis liquidate bad assets and take losses. Those that have big problems liquidate good assets, and play for time. The big problems will deliver a more concentrated bad result at liquidation, unless there is an unexpected strong upturn in the economy.
Very nice article. I totally agree with the following…..”The non-traded BDC was designed to solve a distribution problem for asset managers, not a liquidity problem for investors.”
That’s essentially a bank run without a backstop. The only rational decision for an investor is to join the run; otherwise, you are left with worthless assets, and because there are senior creditors ahead of you, you could end up with nothing.
It isn’t panicking if you exit first.
I wrote something like this at Aleph Blog on a more general basis to help people understand how bad a credit problem is. Summarizing: Those that don't have big problems in credit crisis liquidate bad assets and take losses. Those that have big problems liquidate good assets, and play for time. The big problems will deliver a more concentrated bad result at liquidation, unless there is an unexpected strong upturn in the economy.
A bit new to the topic, so maybe a stupid question, but where in all this stands the so-called "dry powder"?