Private Credit

An introduction to this asset class

Private credit involves providing direct financing to companies outside the traditional banking system, with structures negotiated on a case-by-case basis. Its growth stems from post-crisis regulatory changes that limited banks’ ability to serve certain market segments, creating space for institutional investors and specialized managers to step in.

Appeal and considerations

Its primary appeal is the generation of recurring income through generally floating-rate instruments, which offer natural protection in high-rate environments. From a diversification standpoint, its low correlation with public assets can help reduce portfolio volatility. That said, it comes with lower liquidity and medium to long-term commitments.

Key factors to evaluate

Evaluating private credit requires attention to three factors: borrower quality, deal structure, and the stage of the economic cycle. Not all strategies are alike — some prioritize stability and income, while others take on higher risk in pursuit of greater returns. Identifying which approach aligns with portfolio objectives is the starting point for incorporating this asset class in a strategic way.

Source: JP Morgan