Private Markets II — Private Debt, Real Assets/Infra & Private-Company Valuation

Learning objectives

By the end you can:

1. Explain why direct lending exists as a distinct asset class (bank retrenchment, BDC/AIF fund vehicles), and describe unitranche/first-out–last-out (FOLO) structuring, original issue discount (OID), payment-in-kind (PIK) toggles, and the maintenance-versus-incurrence covenant distinction.
2. Compute a direct loan's all-in yield (cash coupon plus OID pickup) to an expected life, read a leverage/interest-coverage covenant test for cushion or breach, and price a call-protection premium.
3. Distinguish core, core-plus, value-add, and opportunistic infrastructure/real assets by their risk drivers, and explain why "infrastructure" spans a far wider return band than the label suggests.
4. Build a concession-life discounted cash flow to equity (separating cash yield from total return) and explain why the terminal value is contractually zero, never a going-concern perpetuity.
5. State the levels-of-value hierarchy (marketable minority → controlling → nonmarketable) and identify, for any private-company valuation task, exactly which adjustment (control premium, discount for lack of control, discount for lack of marketability) applies, in which direction, and in what order.
6. Compute a control-premium/DLOC bridge and a discount for lack of marketability (DLOM) using both an empirical-study anchor and the Chaffe option-pricing proxy, and name the Mandelbaum factors that justify a chosen figure.
7. (Productivity objective: R10 duality.) Know which category of AI tool belongs in private-markets diligence work, and why this specific corner of the corpus, a judgment call with no lookup-able right answer, is the single highest AI-over-trust zone you will meet.
8. State this module's mastery gate (≥85%) and pass it.

The duality, stated once (R10). As in every module of this branch, objectives 1–6 and 8 are the understanding gate; objective 7 is the productivity payoff you keep. Nowhere in the corpus is the gap between the two more dangerous than here: a DLOM or control-premium figure is never a fact to retrieve, it is a defensible judgment built from named evidence, and an AI assistant will hand you a confident, specific percentage with no defensible basis whatsoever, the purest form of AI0.01's "plausible, not true" applied to a number that decides what a family actually inherits or what a lender actually recovers. Verification here is not a courtesy step; it is the entire discipline.

Prerequisites & connections

Builds on. M3.04's discounted-cash-flow mechanics and M3.06's comparable-company and precedent-transaction machinery are assumed fluent, this module never re-derives how to build a DCF or a comps table, only how to adjust their output for a private, illiquid, or contractually-finite setting. M3.10 supplies two things you will lean on repeatedly without re-reading them here: its distressed/IBC Section 53 waterfall (§4.7 there) is exactly where a defaulted direct loan ends up, and its general triangulation discipline, never average disagreeing methods, explain the gap, is the mindset this module's private-company bridge applies to a much narrower, more personal decision. E11.01's leverage/coverage ladders, covenant vocabulary, and rating logic are assumed; this module extends them into the privately negotiated, bilateral setting rather than the broadly syndicated or publicly rated one. E11.02 defined the control premium off a public target's unaffected trading price, a private company has no such price, so §4.10 shows you how the same concept travels into a world with nothing to anchor against except the value you just built yourself. M6.04's behavioral-finance material (loss aversion, the endowment effect, anchoring) is the quiet undercurrent of every family-business valuation conversation you will ever sit in on, an owner's attachment to "what my company is worth" is rarely neutral. PW1.02's fund-economics vocabulary (J-curve, called capital, carry on realized gains) is contrasted directly in §4.4 against direct lending's current-income engine, same GP–LP alignment grammar, a different cash-flow shape entirely.

Feeds into. PW1.01's concentrated-position unwind and estate-transfer planning for a business-owning client consumes this module's private-company bridge as a direct input, you cannot advise on "what will my children actually receive" without first knowing which interest, at which discount, is actually being transferred. AL1.02 will place infrastructure and real assets inside a portfolio-allocation lens (expected return, inflation linkage, diversification), this module supplies the individual-asset valuation machinery that allocation decision has to sit on top of. ES1.01 and ES1.02's fiduciary-duty and conflicts-of-interest material is the formal ethical frame around a technical fact this module states bluntly in §4.12: DLOM and control-premium judgment calls are a documented, litigated site of appraiser conflicts, and the discipline that protects you is technical (cited evidence, written-down reasoning) before it is aspirational.