Hi {{first_name}},

I witnessed the Amazon FBA aggregator collapse up close and personal. 

Back in 2021, Fulfilled By Amazon (FBA) businesses were exploding and capital soon flooded in to roll up these businesses into mega FBA portfolios.  I did my part during the height of this frenzy: I’d written a bestselling book, Buy Then Build, on business acquisition and I was the M&A advisor helping owners sell their FBA businesses to would-be aggregators.  More than $12 billion poured into the space in under two years.

Many of the operators raising capital at the time had never run FBA businesses. They were executing an investment thesis on a business model they didn't understand from the inside. Competition drove valuations up and deal quality down. When the businesses didn't perform perfectly under stress, the narrative shifted pretty fast. FBA aggregation doesn't work. The whole category got written off, along with billions in enterprise value.

The FBA aggregator implosion boils down to hype. 

Hype drove operators who didn't take time to learn the underlying business to dive in headfirst. Hype blinded investors from running proper diligence on the business and the acquirer.  And hype meant capital flooded the market, so even the operators who knew better couldn't be selective about their deals.

I'm watching the same pattern unfold in private credit right now.

Just a few short years ago as interest rates hovered near zero, private credit funds started popping up trying to catch all the capital rushing in. Fast forward to present day, Jamie Dimon and Jerome Powell are now sounding alarm bells. BlackRock has marked down one of their private credit funds by 19% in a single quarter. KKR wrote down a significant portion of their portfolio. Blue Owl started gating investor redemptions. The headlines are loud and getting louder: Private credit is a contagion. Shadow lending is the next systemic risk. This is 2008 all over again.

I run a private credit fund. I’m reading these headlines closely, so are our investors, but our approach hasn’t changed.

If you've been reading those headlines and wondering whether private credit belongs anywhere near your portfolio, I understand the hesitation. 

But I've also seen what happens next. It’s the twist, where the story goes in a different direction.

The private credit headlines are completely predictable. Every time a massive wave of capital discovers an emerging asset class faster than investors learn to evaluate it, you get the same sequence: internet stocks in the late '90s. Bitcoin in 2017. FBA aggregators in 2021. And now private credit in 2026. The capital surge itself degrades deal quality, compresses returns, and funds the worst operators right alongside the best. Then the blowups arrive and the whole category takes the blame.

The diligence failed. The asset class isn’t the problem.

And for investors who understand the variables, the moment when tourist money exits is when the opportunity clarifies. 

This week I’m outlining:

Let's get into it.

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

There’s one big problem with the current narrative around private credit. It isn’t just one simple market. Private credit serves as an umbrella term that encompasses any debt or debt-like investment that doesn’t trade on a public exchange.

For decades, banks handled many of the kinds of loans that now make up the private credit universe. That changed after 2008. 

After 2008, Basel III and its successor regulations forced banks to hold significantly more capital against their loan books. Banks are typically leveraged eight to ten times their own capital, three to four times more than a typical business. At that level of leverage, a 6% interest rate on a loan portfolio means razor-thin margins. A small increase in defaults can wipe out an entire year of profit.

So they decided to move onto the safest loans, focusing on big corporations, government-backed mortgages, prime lines of credit. Banks pulled back, consolidated. 

The number of FDIC-insured banks in the United States has fallen from over 8,000 in 2008 to under 4,200 today.  The “messy middle” of the lending market, small commercial real estate loans, bridge financing, sub-institutional business credit, was abandoned.

The demand for that capital didn't disappear when the banks pulled back. Businesses still need financing. Real estate developers still need bridge capital. The borrowers are still there. The institutional lenders just left the table.

Where the Money Went (and Why It Matters)

Private credit is now a nearly $2 trillion asset class, but most of the people invested in it can't tell you what their money is actually underwriting. 

The gap left by the banks meant those dollars could pour in from private capital. This meant pension funds, endowments, insurance companies, family offices, and eventually retail investors through semi-liquid private credit fund structures.

With the hype came the capital, but not a deep understanding about the underlying principles of the asset class.

Most of the institutional money flowed into the upper middle market business credit. Lending to software companies, tech startups, and growth-stage businesses. These loans are backed by the ongoing value of the business itself, meaning the lender is secured solely by the company’s capacity to keep running. 

Think about that. Businesses create value through intangible assets such as people, processes, relationships, proprietary insights. 

When a lender gives a tech company $50 million backed by its enterprise value, the collateral is the people showing up to work, the software they sell, and a market that continues to see viability in the product.  If any of those variables change, the collateral evaporates. 

When I allocate capital to a debt position, I want the exact opposite of that. I want real assets. Low loan-to-value ratios. Control rights. If I'm acting as the bank, I need to act like a bank. 

If I want to share in a business’s success, I buy equity.

The Three-Variable Hype Blowup

Private credit is under stress for the same three reasons that FBA aggregators collapsed, driven by weak operators, naive investors, and too much capital chasing too few good deals.

#1 The operators. Many of the biggest private credit funds jumped in because the space was hot. They hadn’t even managed through a downturn. It’s easy to run a fund when rates are low and no one’s defaulting. It’s a different game when borrowers start missing payments. 

#2 The investors. In 2021 and 2022, big institutions poured money into private credit, hunting for higher yields in a world of low rates. When they heard “private credit,” they thought “safe, high returns.” But what’s the value of the underlying asset? How much can I actually recover in the case of a default? These questions matter more than the advertised yield. 

#3 Capital pressure. When a fund raises $5 billion and needs to invest, managers can either go high and return unused money or go low and get the cash out the door. Almost always, they choose to go low. That means lending to weaker borrowers at lower yields and with fewer protections—just like FBA aggregators overpaid for businesses they couldn’t run profitably.

This is what's happening at the institutional level of private credit right now. Yields are compressing. Deal quality is declining. The biggest funds are competing for the same borrowers and forcing each other into weaker positions.  

By contrast, the lower middle market, where check sizes are $10 million and under, institutional capital can't economically compete.

Is it Tangible?

If you take one thing from this issue, let it be  that evaluating any private credit opportunity is whether the loan is secured by a tangible asset or an intangible one.

Take two loans. One is backed by a multifamily property at 65% loan-to-value. The other  by a SaaS company valued at 8x revenue. Both are marketed as private credit. Only one has a floor.

There's also a structural conflict with business collateral that rarely gets discussed. 

When an entrepreneur takes on private credit instead of private equity, they keep their ownership. That sounds good for the entrepreneur. But the investor in that debt position isn't getting the equity upside. They're getting a fixed return with the full downside risk of a business that may or may not work. And what no one talks about is if the business starts failing, the entrepreneur who controls the company isn't going to foreclose on themselves. The borrower and the operator are the same person. The incentive to protect the lender's position simply isn't there.

Collateralized real estate lending eliminates that conflict entirely. The borrower and the asset are separate. If the borrower defaults, the lender can step in, take control of the asset, and protect their basis. The math is straightforward and the incentives are aligned.

The Headlines Are Telling a Good Story

Recent headlines about losses at big funds mean the “tourist” money is leaving. That’s good news for careful investors in smaller, asset-backed deals, where opportunities are still strong and competition is light.

The pattern is the same one that played out with FBA aggregators. The capital floods in. The worst operators blow up. The media declares the category dead. And the disciplined operators, the ones who understood the variables from the beginning, keep extending credit while everyone else moves on to the next shiny thing.

But not all private credit is created equal. The risks investors are reading about aren’t evenly distributed across the market. To tell the story in more detail, we break down why parts of the market are becoming more attractive, not less.  Read our Report HERE.

Ben Fraser is the Chief Investment Officer at Aspen Funds (our partner in the fund, BuildFlow I) and an investor himself. Before he co-led Aspen’s credit strategy, Ben spent years in the trenches as a commercial bank underwriter. Borrowers had to send him their tax returns, balance sheets, any statements, basically their full financial picture. He saw how much they were worth, what they owned, and pieced together how they got there.

“Every successful client I worked with had two things in common. They owned a business and they owned real estate,” he recalls. “It’s not a coincidence.”

He quickly rose through the ranks but he could see the ceiling in this career path. Plus, he found himself increasingly conditioned towards pessimism. 

“Every loan gets evaluated through a glass-half-empty mindset.”

Banks, Ben says, are hardwired for caution. Their business is about avoiding losses at all costs. “You don’t get rewarded for the positives. You’re only dinged for exposure to the downside. It creates a mindset that's useful for identifying risk, but it doesn't align with what I wanted to do, which was to go and build."

He left banking and joined his father, Bob at Aspen Funds in 2018. His first funds were credit and debt focused. The team knows debt from the inside, and they built around that expertise long before private credit became a headline.

That distinction matters right now more than it ever has.

"I've never had more deal flow than right now. And the deal quality is really, really good. I don't have that many competitors coming in and trying to compete against my capital."

Aspen plays a different game. Instead of chasing growth-stage business loans, the firm focuses on the lower middle market in real estate with deals backed by tangible assets, structured for safety. “We invest through preferred equity on real estate and priority in repayment,” Ben explains. “We’re not seeing yield compression. If anything, the quality of opportunities is going up.”

The reason is simple. Ben operates in the lower middle market, writing checks of $10 million and under into real estate-backed preferred equity positions. At that size, the institutional capital can't economically compete. The deal flow is abundant, the terms are favorable, and the underwriting standards haven't been compromised by capital pressure.

How Aspen’s Credit Fund Works

Aspen's credit fund invests primarily through preferred equity in commercial real estate. The structure is deliberate and every piece of it traces back to the discipline Ben learned in banking.

The fund lends against real assets.They invest through preferred equity, with conservative loan-to-value ratios. There’s a real cushion. If a deal goes sideways, they can take control or force a sale often at a basis that improves returns.

They also strategically avoid rescuing old deals. If the money is going backward to fix a broken investment, Ben walks.

Instead, they focus on new acquisitions and properties bought at reset prices, with cash flow from day one and less leverage.

There’s also the advantage of their capital actually helping equity investors earn more. That creates demand. Borrowers want this capital. Aspen can be selective about their fund.

The Operational Edge

Here's where most private credit operators and banks fall short. 

They have one response when a deal goes bad: hit the foreclosure button and hope to recover most of their capital. They don't have the staff, the expertise, or the incentive to actually step in and manage the asset.

"This is where our background makes a real difference," Ben says. "We also own and operate real assets. We have staff that can step into a deal and run it if we have to take it over. It gives us optionality to protect our position that a pure lending fund just doesn't have."

That operational capability means if a deal underperforms, they're not limited to foreclosure. They can stabilize the asset and protect their basis from the inside. It's the advantage of being an operator who lends, rather than a lender who hopes the operator performs.

"We are able to be way more selective," Ben says. "And because we're not writing these billions of dollars in deals and focused more on the middle market, we have a lot more runway to grow."

INTERESTED IN ACCESSING OUR PRIVATE CREDIT STRATEGY?

As mentioned, Aspen Funds is our partner in BuildFlow I. It’s our diversified private credit fund, structured as an open-ended, continuously deploying vehicle focused on real estate-backed lending in the lower middle market. Capital goes to work upon investment rather than waiting for staged closings. After a 2-year lockup, optional quarterly liquidity is available thereafter. 

I personally have $800,000 of my own capital in this fund. Build Wealth members invest through a dedicated share class with a $50k minimum and a reduced fee structure.  This means a higher net return on this fund than you can get anywhere else. For the best terms, use Build Wealth as the access point.

Visit the BuildFlow I dealroom

The best private credit funds offer higher yields than bonds with less volatility than the stock market. For the private market investor, private credit offers the ballast of predictable income. Offering steady income, meaningful downside protection, and the freedom to take bigger swings elsewhere.

Before writing a check on any private credit opportunity, run it through these four filters. If any one of them fails, walk away.

Filter 1: Collateral

You need tangible collateral with a verifiable floor value. Real estate. Physical infrastructure. Hard assets that exist independent of the borrower's business plan. The test is knowing if the borrower disappears tomorrow, what do you own and what it’s worth?

If the answer involves enterprise value or projected cash flows, you're carrying equity risk at debt returns — all the downside, none of the upside. Request the collateral schedule. If you can't touch it, visit it, or get an independent appraisal on it, the deal isn't right.

Filter 2: Loan-to-Value Ratio (LTV)

LTV tells you the cushion between what was lent and what the collateral is worth. A 65% LTV means there's a 35% margin of safety before the lender's principal is at risk. An 85% LTV means there's little room for the asset to decline in value before the lender starts losing money.

But the number is only as reliable as the valuation behind it. Ask: Who valued the asset? When? Does it reflect current market conditions or peak-cycle assumptions? Does the fund mark its own book or use third-party valuation?

Ben Fraser pointed this out.  An early warning sign in troubled private credit funds is how they calculate their net asset value. If the fund is marking its own positions without outside corroboration, the NAV number may be optimistic long before the write-down arrives.

A conservative LTV on a current, third-party appraisal is one of the strongest signals of lending discipline. A generous LTV on a stale or self-reported valuation is one of the weakest.

Filter 3: Default 

Three questions matter here:

If the borrower is also the operator, ask yourself who is going to enforce the lender's rights when things go wrong. The borrower isn't going to foreclose on themselves. Look for structures where the collateral, the borrower, and the lender are distinct parties with aligned but independent incentives.

Watch for payment in kind (PIK): when a borrower can't pay cash interest and the balance accrues instead. The fund still shows its stated return on paper. No cash is actually coming in. Rising PIK percentages are a leading indicator of portfolio stress. This shows up well before a formal write-down.

Filter 4: Deployment

When a fund raises more than it can carefully deploy, one of two things happens. Either it returns the cash (rare, because that means returning fees), or it lowers its standards to put the money to work.

Ask: How much capital was raised in the last 24 months? What percentage has been deployed? What was the average time from raise to deployment? A fund that raised $2 billion and deployed it all in under 18 months likely didn't hold every deal to the same standard. Deployment speed is a proxy for discipline. Slow and selective means the operator can afford to say no.

These Filters Indicate if the Credit Fund is Worth Your Capital 

Any private credit opportunity that passes all four is operating in a fundamentally different category than the ones in the headlines right now. This test  doesn't guarantee returns. Nothing does. But they can separate the operators who understand what they're lending against from the ones who are lending against sheer hope.

"Risk comes from not knowing what you're doing." — Warren Buffett

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This is not financial advice. Illustrative output of a reasoned thought experiment. Not a backtest, guarantee, or prospectus. Actual results vary based on market conditions, fund selection, timing, fees, taxes, and factors not modeled. Private credit, CRE, and leveraged strategies involve significant risk including loss of principal. Consult a qualified financial advisor.