RIAs considering more private credit in portfolios: Study

investmentnews.com:

A recent survey conducted by Crystal Capital Partners, a wealth tech provider and alts platform, found that registered independent advisors are increasing their allocation to private credit funds.

A majority of the advisors surveyed are looking to reallocate some portion of their existing public fixed-income exposure to private credit, in particular direct lending, to take advantage of better risk-adjusted return expectations, diversification benefits, and the potential for higher yields.

In an interview with InvestmentNews, Alan Strauss, senior partner at Crystal Capital, said advisors are starting to see that not all private credit fund managers are created equal.

“The rationale, from an advisor standpoint, is that they’re giving up certain liquidity,” he said. “When you commit to a private credit fund manager, they are underwriting new loans based on capital … and as they underwrite these new loans, it gives the investor fresh new loans that they’re exposed to.”

Strauss noted that private credit fund managers historically have always been able to deliver two important things. One is a premium above public fixed income, with the trade-off being illiquidity, “but you’re still getting liquidity because they are distributing yield every single quarter, so it acts like a traditional bond,” he said.

“The second thing is when the managers do it with very low default rates. And that second part of the equation requires an assumption of trust,” Strauss said.

Data from the survey show that more than 60 percent of advisors said they were planning to increase their exposure to private credit this year. Twenty percent said they had significant exposure to private credit within their client portfolios, while more than 45 percent