However, investors may be required to pay fees of as much as 2% of the assets under management and 20% of any profits to these wealth managers.
#PRIVATE CREDIT SECRETS PROFESSIONAL#
Professional wealth managers can be attractive because of their decades of experience in investing. Some well-known firms that have private credit funds include Blackstone and Ares Management, both of which also engage in private equity. High-net-worth individuals may be able to invest in private credit by hiring a wealth management firm. Investing with professional wealth managers However, there are some ways that a retail investor can gain exposure. Private credit is traditionally dominated by institutional investors. This could lead to a correction in private credit markets, causing returns to suddenly decline. Sometimes, when an asset class undergoes a sudden boom, there is a risk that people are paying more for the asset than it is worth. These firms often charge management fees as high as 2% of the assets under management. Most investors in private credit retain an asset management firm that specializes in private credit. Private credit funds are inherently illiquid because contracts take several years or even decades to mature and investors usually are barred from cashing out prematurely. Investing in private credit comes with several risks, including: There are now more ways than ever for individuals who are interested in investing in private credit.
The private credit industry has boomed during the past two decades. This can make private credit less risky than private equity. In the event that a borrower declares bankruptcy, the company is almost always obligated to pay its creditors before it pays its equity holders. This means that as long as the borrower does not default, lenders know the returns they will receive. Because of the long-term nature of the investment, private credit tends to be less correlated with the short-term ups and downs of public markets.īorrowers and lenders usually agree on a set repayment plan with predetermined interest rates when arranging a private credit agreement. Private credit investments can take several years, if not decades, to fully mature. Many investors use private credit as a way to diversify their holdings. Private credit investment products attracts investors for several reasons, including: Institutional investors such as pension funds and endowment in particular have flocked to private credit, as have some retail investors. Much of the growth has been in reaction to the more stringent lending standards that regulators forced on banks after the 2007-09 financial crisis. The private credit industry, part of the broader universe of alternative investments, has boomed over the past two decades, growing from $42 billion in global assets under management in 2000 to $1.1 trillion in 2021, according to consulting firm PwC.
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