Where Can Private Credit Fit in an Institutional Portfolio?

Executive summary:

  • Amid concentration risk in equities and fixed income, private credit investments enable institutions to better diversify across unlisted organizations, economic sectors, and regions.
  • When compared to tradable fixed income, private credit has the potential to offer higher annualized income.
  • Private credit investments typically provide a stable and predictable income stream.
  • Increasingly, fund structures have been designed to enable greater degrees of liquidity in private credit.

Where can private credit fit in an institutional portfolio?

With storm clouds forming above equities and fixed income markets, is now the right time for institutions to grab their private credit labeled umbrella?

After having been on a formidable run, the Magnificent Seven stocks, and equities more broadly, appear to be showing signs of stumbling, with greater scrutiny of their sky-high valuations. Moreover, with interest rates expected to fall further by the end of the year, fixed income instruments are also on course to lose some of their attractiveness.

Amid this change, investors and institutions alike should be wary of the concentration risk of being overly exposed to these asset classes and consider if their risk allocations can be better utilized elsewhere—like in private credit.