Financial Advisors

A Primer on Private Credit as an Opportunity for Fixed Income Replacement

The 60/40 portfolio is no longer delivering for many investors, creating a growing demand for alternatives to traditional fixed income allocations. One such replacement opportunity is Private Credit, which has been among the fastest-growing asset classes over the past five years.

While bond yields remain lackluster, access to floating rate credits puts many Private Credit strategies in lockstep with rising interest rates, providing a compelling opportunity within alternative investing. In this article, the team behind TIFIN Private Markets share what you need to know when considering Private Credit investments.

What is Private Credit?

In the most simple terms, private credit includes privately originated or negotiated investments not traded on the public markets. There are a variety of opportunities within this asset class, with some investments more reminiscent of bonds with the goal of income generation, and others seeking higher returns, evoking equities.

The variety within the Private Credit space allows for instruments catering to varying risk tolerances and portfolio goals, however the majority of the private credit market is senior direct lending, where holders are first in line for repayment in the case of a default.

Private Credit funds target the ownership of corporate, physical, or financial assets held within a private fund partnership structure. Credit exposure can be either corporate, where repayment comes from cashflows generated by an operating company, or asset-based, where repayment comes from cash flows generated by a physical or securitized asset.

What are some Potential Advantages?

An allocation to credit has the potential to enhance return and provide income. Private Credit opportunities consist of potentially higher yielding investments across a range of risk/return profiles. Private Credit investments have also enjoyed lower default rates than high-yield bonds. Additionally, they can represent a powerful diversification tool as they are not correlated to traditional fixed income investments.

Private Credit has grown tenfold in the past decade, with assets in private credit funds reaching a record $1.6 trillion in assets as of March 2022. With the spiking of inflation and rising interest rates, many investors are drawn even more so to Private Credit investments featuring floating rates, which rise in line with interest rates. Private debt has also emerged as a way to bypass volatility in the public markets, which could be an attractive option to investors with a long-term outlook.

Additional Considerations

Investors interested in this space should consider liquidity as private debt loans are often less liquid than broadly syndicated loans. These investments have traditionally been considered buy-and-hold, however different liquidity profiles are emerging, some without lock-ups, as this space expands and businesses only require loans for specific, shorter-term time periods.

Transparency is another consideration, as it may be difficult to assess long-term borrower risk in the case of a credit crisis. However certain loans’ seniority profiles in the case of default coupled with lower historic default rates overall may alleviate investor fears in this area.

Getting Started with Private Credit

Many modern platforms are now available to help advisors find the right Private Credit funds for your clients. With more of these funds entering the market each day, advisors can more easily hone in on the risk and liquidity profile that best suits your clients’ needs.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


TIFIN is a platform that conceives, creates, and operates fintech companies in the areas of wealth management, investments, and personal finance. Our operating companies are shaping the future of investor experience with intelligent products that recognize the uniqueness of each investor. We leverage the combined power of investment intelligence, data science, and technology to make investing a more powerful driver of financial wellbeing.

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