The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, June 16 (Reuters Breakingviews) - There’s a quiet but cutthroat war in private credit. Direct lending, the non-bank business of mostly backing risky buyouts, became a $1.3 trillion boom, fattening up investors from Apollo Global Management APO.N to Blackstone BX.N. As they navigate a rough patch, some want to remake this financial fiefdom into something more tradable. Opposition, however, is stiff.

Direct lending accounts for about half of all private credit assets, according to Morgan Stanley analysts, making it a formidable force. Amid fears of overheated underwriting and threats from AI, business development companies, through which many lenders extend IOUs, have lost about 20% of their market value over the past year, judging by the S&P BDC Index.

Apollo boss Marc Rowan said in May that, to help rebuild trust among aggrieved investors, his shop would begin pricing its direct loans daily, rather than the standard quarterly cadence. In theory, it gives potential buyers better data with which to bid for assets.

It makes sense in at least one way. Jeff Levin, Thoma Bravo’s credit chief, said last month at the Milken Institute Global Conference that he has been combing through loan portfolios to find opportunities in the software industry, his investment firm’s bailiwick. For such specialists, flexing their expertise should help reassure a BDC loan's investors while also securing a small discount, of say 95 cents on the dollar.

There are steep barriers to overcome. For one thing, secondary trading volume in private credit was only $20 billion last year, according to Evercore estimates.

Moreover, regardless of how frequently a security prices, it means little if buyers aren't the ones setting it, as asset manager Pimco notes. Instead, direct lenders value their own portfolios using opaque methods. Most direct loans also require the borrower's consent to be transferred. It means Apollo, for example, might need the blessing of a rival like Blackstone.

Consent is likely to be a nagging headache. Thriving incumbents, such as Blackstone's $79 billion BCRED fund, have little to gain from a shakeup that might threaten their promised edge in investing and holding collaboratively with privately insulated stability.

Rowan, however, is forging ahead with ambitious plans to make markets. Apollo's joint exchange-traded fund with money-managing goliath State Street is a push in the same direction, packaging up non-bank debt into a public product traded by the tick. The risk of higher-profile blowups will be another major deterrent that makes it even harder to drag private credit out of the shadows.

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CONTEXT NEWS

Apollo Global Management CEO Marc Rowan said on May 6 that the investment firm he runs would begin to report daily pricing of its direct lending and asset-backed finance assets to fund investors.