A version of this article was originally published in the Financial Times
Once the domain of pension funds, insurers, and the uber-wealthy, private credit is undergoing a quiet transformation.
Product innovation and technological advances are rapidly opening the door to a new class of investor: individuals who are affluent but not in the top tier of the ultra-rich. One blended fund that invests in public and private assets now has a minimum investment of just $1,000.
The result is one of the fastest-growing segments in investing. Private credit holdings by the wealthy have grown 2.5-fold in the last three years — four times faster than the traditional institutional business. On new estimates by Oliver Wyman, these investors now account for roughly 12% of the private credit assets of leading firms. Much of this is still concentrated in the hands of the ultra-rich, but the ambition is clear: to bring private credit into the mainstream of wealth portfolios. Oliver Wyman estimates the top seven firms have around $275 billion of private credit assets under management from the wealthy and the total industry to have between $325 billion and $375 billion.
Evergreen funds, which allow new investors to buy and redeem their stakes periodically rather than invest for a fixed period, are transforming access. One key reason is the ability to put funds to work right out of the gate, unlike so-called drawdown funds which make complex cash demands on investors, calling in committed funds over time to deploy.
Investors are also rethinking what makes a diversified credit portfolio, asking why they should put 100% of fixed income investment into public assets. Many wealthy investors are starting to adopt a “barbell” strategy — combining low-cost bond ETFs at one end with higher-yielding, less liquid private credit at the other. This barbell effect, long a hallmark of equity investing, is now reshaping bond investing and has a very long way to run.
Read the original op-ed here (paywall).
