Private credit may be all the rage among investors, but there are better alternatives, according to JPMorgan Asset Management.
Amid signs of a turnaround in commercial real estate, opportunities exist in commercial mortgage-backed securities, non-traded real estate investment trusts and direct investment vehicles, said Gabriela Santos, the $3.3 trillion asset manager’s chief market strategist for the Americas.
She also notes potential to invest in single family and industrial real estate, as well as infrastructure debt and equity.
“For that marginal dollar, to us, real estate and private equity are a bit more interesting,” Santos said in the latest Credit Edge podcast. Those asset classes have repriced on higher rates, while private credit hasn’t, she added.
Private debt has swiftly ballooned to a $1.6 trillion asset class that could be much bigger when asset-based finance is included. While many buyers are happy to sacrifice liquidity and transparency for higher returns, some large portfolio managers have said there’s not enough of an extra return over publicly traded debt to justify taking the additional risk.
That said, JPMorgan is still seeing a lot of interest in private credit, especially from private wealth clients. Santos says direct lending yields about 10% on average, compared with 7.5% on public junk bonds and roughly 8.5% on leveraged loans.
She values the proximity to borrowers that private markets afford, providing the option to amend and extend loans through periods of stress.
“Having that personal relationship with direct lending and private credit more broadly, actually, is something that’s helpful, not just for the borrower but also for the investor,” said Santos.
While debt agreements are getting amended and extended more, they remain “within the bounds of normal,” according to Santos, who expects private debt to do well as long as the US economy and earnings remain solid.
