Private credit beyond the headlines

Private credit has become one of the most talked-about asset classes in the private investment landscape, but not always in a constructive way. Recent headlines around credit stress, individual loan issues, liquidity concerns, and fund gates have all created uncertainty for many advisors and their clients.

For RIAs, the current environment raises an especially important question: is private credit still attractive, or are headlines pointing to something more serious?

Not all private credit is created equal

As someone who has been allocating to private markets for more than 20 years, I think the conversation needs more context. I recently explored this further during a webinar with Joe Monaghan of PPB Capital Partners.

During that discussion, we established that private credit is not a single investment or strategy. Rather, it comprises a large universe made up of many different asset types, structures, borrowers, and managers. A troubled loan or a challenged fund might create headlines, but that alone doesn’t tell us much about the health of the broader market.

In my view, that’s the central theme RIAs should be focused on today: not all private credit is created equal.

 Consider the differences between senior secured direct lending, real estate debt, and lower-rated CLO exposures. Each sits somewhere within the broader private credit stack, but they are not interchangeable. Senior secured direct lending involves loans with strong covenants and stable return profiles. Real estate debt is backed by tangible collateral and conservative loan-to-value ratios. Lower-rated CLO tranches, on the other hand, usually carry more volatility and embedded leverage.

That same variation can be found across the asset class. Infrastructure debt, asset-backed finance, mezzanine debt, junior debt, venture debt, and specialty lending are each influenced by different factors. Some strategies are more defensive and income-oriented, while others assume greater risk in pursuit of higher return potential.

Dispersion makes diligence essential

The historical returns tell a similar story. If private credit were one uniform asset class, we could reasonably expect performance across funds and strategies to cluster relatively tightly. In reality, some private credit funds have delivered strong positive returns, while others have produced more modest results, or even negative performance.

That’s why manager selection matters so much. The differences between managers can have as much of a material impact on outcomes as the fundamentals. Advisors should understand what type of credit they are accessing, how the loans are structured, what collateral supports them, how much leverage is being used, how diversified the portfolio is, and how the manager has performed across different market environments.

Ultimately, our view is that private credit should not be evaluated through the lens of a single quarter or a handful of stressed loans, but across full market cycles. Importantly, many of the underlying drivers that have historically supported private credit, like higher yields, supply-demand dynamics, and default trends, have remained consistent over the years. That doesn’t eliminate risk, but it does suggest that the opportunity set remains compelling for investors who can take a long-term view.

Building more resilient private credit exposure

In my experience, allocators should focus on a few core principles when building private credit exposure:

First, diversification matters across both strategies and managers. Direct lending, for example, can be an important core component, but the private credit universe is much broader than that. Real estate debt, specialty lending, and other niche strategies can bring different return drivers and help reduce reliance on any single part of the market. A mix of larger and smaller, more specialized managers can further reduce sensitivity.

Next, be deliberate about risk. A rocky market doesn’t mean investors should avoid private credit altogether. Instead, investors should be more selective about where they take risks to create a more resilient allocation .

 Finally, remember that dislocation can create opportunity. When other investors are prioritizing liquidity or selling assets at discounts, opportunistic and secondary managers may be able to step in and acquire attractive credit exposure at compelling prices.

Making the leap from access to implementation

When building portfolios with private credit exposure, CIOs have their work cut out for them. Resources and time will be needed to evaluate managers, conduct diligence, understand strategy differences, assess liquidity terms, manage subscription documents, handle capital calls, track K-1s, review reporting, educate internal teams, and communicate with clients.

That’s a lot to build and maintain, especially for firms that do not have dedicated private markets infrastructure.

That’s one of the reasons we built the Century Park Growth and Income Fund the way we did.

The fund is designed to serve as a core allocation to private markets, with diversified exposure across private credit, private equity, real estate, specialty lending, and other niche alternative strategies. The goal is to give advisors access to a broad private markets portfolio in a simple structure with one subscription, one K-1, and one quarterly report. Because it’s an evergreen fund, investors can also gain exposure to an established portfolio with immediate deployment rather than wait years for capital to be called.

That structure doesn’t eliminate the need for diligence or a long-term perspective. Private markets still require patience, and investors should understand the liquidity terms and underlying exposures. But the right structure can make private markets more accessible and easier for RIAs to manage.

What RIA leaders should take away

The recent headlines around private credit shouldn’t be ignored. They raise important questions about liquidity, leverage, underwriting, and manager discipline. Still, in our view, the most important takeaway for allocators is not to avoid private credit, but to be more thoughtful about how opportunities within it are evaluated and incorporated.

That requires both investment discipline and implementation discipline. Being able to identify attractive opportunities isn’t enough. Advisors also need the infrastructure to evaluate them, access them, administer them, and explain them clearly to clients. Clients, in turn, need to understand what they’re giving up in liquidity, what they’re seeking in return, and why patience is often required. Ultimately, diligence, diversification, and structure will determine the investor experience.

To learn more about private investments, visit westmount.com, call 310-556-2502, or contact your Westmount advisor directly.