Where does risk belong?
Top executives put risk inside a structure that was finished before the risk was taken, and they spend a good deal more of their time on that structure than on the decision itself. Nobody writes articles about the covenant schedule. They write about the bold move. But the covenant schedule is where the real work went. Arif Bhalwani said between 85 and 95 percent of the firm’s loans were senior secured, and that investors could see details down to the collateral behind each one. That is a surprising amount of scaffolding for a lender whose business depends on companies the banks had already refused. It only sounds contradictory until the logic is spelt out. Lending to a borrower in trouble is fine, provided the lender has already arranged to be first in the queue if the borrower’s trouble gets worse.
Why does timing matter?
Timing matters because an identical risk can be sound in a quiet market and reckless in a crowded one, and the executives who last tend to make their largest commitments when the crowd has thinned out. Bhalwani did not dress this up.
- In early 2025, capital was going out with almost nobody competing for the same deals, and the firm was setting terms with barely any resistance from the other side of the table.
- Roughly two years earlier, in a market that looked perfectly healthy, managers had felt pressure to deploy and had given ground on protections to get transactions closed.
- Bhalwani’s summary of that earlier period was that the worst deals happen in the best times. Nobody has been burned lately, so nobody is careful.
A long-term thinker treats a calm market as the time to tighten standards and a stressed market as the time to act. Most people feel the opposite pull. Resisting it is one of the surest signs of an executive thinking in decades.
Holding to discipline
Discipline is what keeps a risk-taker from drifting into gambling, and from the outside it looks like a long string of refusals and some uncomfortable sums.
- Bhalwani talked about a pull toward deals a manager would never ordinarily touch, created by capital sitting unused and a board wanting to know why. Saying no to that, repeatedly, is most of what discipline is.
- Anyone investing in private lending gives up the option to leave fast. Bhalwani called this a feature, with one condition, which is that the return has to pay for it. Accept a constraint without being paid, and no risk has been taken. A mistake has.
- Scepticism, in Bhalwani’s words, keeps everyone sharp and honest. The comment was not a courtesy. Long-term thinkers want their assumptions pulled apart by people who have nothing to gain from the outcome.
Reading uncertainty honestly
Honest reading of uncertainty is the last piece, and some days it means sitting still. Bhalwani mentioned a buyer who had walked away from a deal involving a portfolio company because of trade policy risk, and remarked that if there is one thing lenders hate, it is surprises.
- The advice to institutional investors at that time was to wait and see rather than make any large move.
- A short-term operator sees waiting as lost ground. A long-term executive sees it as a position, held deliberately, until the picture is clear enough to price with some confidence.
- The judgment behind the pause and the judgment behind the aggressive move are the same. One is applied when conditions reward action and the other when they punish it.
A middle ground between risk and patience does not work. It starts with protection. Quiet markets allow hard moves. Loud markets hold the standards. Sometimes the right risk lingers a bit longer on the shelf.
