High-net-worth individuals (HNWIs) and family offices are constantly looking to preserve and grow their wealth outside traditional investment options. This makes private credit, a form of lending to businesses by non-bank institutions, an increasingly relevant asset class to private wealth management as it offers a diversified investment option with potential for higher returns and risk-adjusted returns. 

Table of Contents

• What is Private Credit
• Benefits of Private Credit Investing
• The Growth of Private Credit Investing
• Private Vs Public Credit Investing
• What to Note About Private Credit Investing
• Syfe’s Private Wealth Management

What Is Private Credit

Private credit is, in essence, privately negotiated loans between a non-bank lender and a borrower, usually a business that might be unable to obtain loans from traditional banks. Private equity firms and alternative asset managers are typically the ones negotiating these loans.

Private credit allows borrowers to access capital with customised financing details they may not be able to secure from traditional lenders like banks. And it has given investors another avenue to access income-generating investments within the fixed income portion of their portfolio.

These loans may contain a floating interest rate and are often structured with customised terms unique to the borrower and lender. They may also contain terms the borrower must meet that would protect the lender if the borrower defaults.

Benefits of Private Credit Investing

Private credit can enhance a conventional equity-bond portfolio, offering the following benefits. 

Attractive income

Private credit typically offers higher yields due to the illiquidity premium, where investors are compensated for committing capital for a longer period. Private loans typically offer an income stream from coupon payments, with potential yield enhancement from discounted issuance prices and fees.

Strong Total Return 

Supported by a yield premium and inherent resilience, private credit has outperformed public loans over the past twenty years —delivering annualised returns of around 10%, compared to just 5% for public loans.

Lower Volatility

Private credit has demonstrated stronger resilience against losses compared to high-yield bonds. Because private credit is not traded on public markets, its valuations are less affected by short-term market fluctuations, thus offering more stability compared to publicly traded bonds. And as rates increase, private credit instruments would automatically adjust their returns, making them less vulnerable to rate hikes compared to fixed-rate bonds, which typically lose value when rates rise.

Additionally, private lenders can choose investments without being bound to benchmark targets, making it easier to weather times of market volatility, slower growth, and tightening monetary policies. The structure of private credit, where a single lender is involved, enables quicker and more effective resolutions in case of defaults, with a better chance of recovery compared to publicly syndicated debt, where multiple competing lenders may complicate the process.

Diversification

Private credit can offer portfolio diversification, as these assets often have lower correlation with traditional asset classes like stocks and public bonds. On top of being a good hedge against market volatility, it also offers exposure to different parts of the economy. Various private credit investing strategies add another layer of diversification and protection to one’s portfolio. 

Investors in private credit can broaden their asset allocation beyond public market exposures and gain exposure to unique corporate credit or asset-backed investments with diversified collateral pools. 

Lender Protection

Private debt lenders have greater influence in negotiating and structuring the loan as they have the flexibility to set their own lending terms. They often secure collateral to safeguard against defaults and implement financial covenants to prevent borrowers from doing things that might increase the risk for lenders.

In the event of a default, secured private debt instruments typically offer higher recovery values compared to public markets or broadly syndicated loans. For instance, secured private corporate debt has a recovery rate of approximately 80%, which means investors recover $0.80 for every $1 invested during a default. In contrast, unsecured public corporate bonds have a recovery rate of approximately 50%.

The Growth of Private Credit Investing

While private credit is not new, it has witnessed significant growth in recent years and become an increasingly important asset class for investors. From a modest US$40 billion in assets under management (AUM) in 2000, private credit in the US has surged to a US$1.2 trillion by the third quarter of 2023.  This puts private credit on par with the US high yield bond market in terms of size, and has established itself as a mainstream asset class. 

A significant portion of this growth occurred after 2019, as private markets expanded rapidly and private credit became a crucial financing source for smaller companies and more niche business models. 

The growth of private credit has been driven by increasing barriers to entry for smaller companies in public markets, as banks stepped back from issuing loans to lower-quality borrowers due to stricter regulations. 

As a result, private lenders (i.e. non-bank institutions) have become more attractive due to their flexibility and support for borrowers, especially in challenging situations like the COVID-19 pandemic. Some private credit strategies also handle complex assets or structures that traditional lenders can’t manage. Additionally, the rise in fund sizes and investor interest has allowed private credit to expand beyond middle-market companies, enabling financing of larger deals while maintaining diversification.

Non-bank institutions now supply about 75% of financing to corporations, a stark shift from the near 50/50 split in 2000.

Looking ahead, the private credit space is expected to continue its impressive growth, presenting significant opportunities for high-net-worth investors who can invest in global enterprises. According to Preqin’s 2024 report, private credit AUM is expected to hit US$2.8 trillion by 2028. 

Private VS Public Crediting Investing

Private credit investing is ideal for investors looking for higher returns, have a longer-term investment outlook, and are comfortable with illiquidity and increased risk. 

On the other hand, public credit investing is better suited for those who value liquidity, transparency, and lower risk, even if it means settling for lower returns. 

Both types of investments offer distinct advantages and drawbacks, and they each have a place in one’s investment strategy depending on financial objectives and risk appetite.

Category	Private Credit	Traditional Fixed Income
Asset Description	Privately originated and held	Publicly syndicated and sold
Traded	No	Yes
Coupon Payments	Yes	Yes
Coupon Structure	Typically Floating Rate	Typically fixed rate
Credit Rating	Not Rated	Rated
Call Protection	Yes	Varies
Liquidity	Illiquid	Liquid
Valuations	Infrequent	Frequent

Where Private Credit Can Sit in Your Investment Portfolio

Private credit has evolved into a robust asset class, offering accredited investors opportunities to enhance portfolio yield, diversify their portfolio, and thus manage risk more effectively. Allocating a portion of one’s portfolio to private credit has been shown to increase annualised returns and build a more resilient portfolio.

What To Note About Private Credit Investing

Private debt investments are less liquid than publicly traded assets as they are usually not bought or sold on secondary markets, and private debt funds do not typically see regular trading activity. 

However, the “illiquidity premium” private debt typically offers helps to offset this illiquidity, which translates into higher yields compared to traditional fixed-income assets like public bonds. The illiquidity premium is designed to compensate investors for the difficulty of exiting their investment quickly. 

As most private debt borrowers tend to have weaker credit profiles, fund managers will need to conduct rigorous credit assessments to evaluate these borrowers. This highlights the importance of selecting the right fund managers. 

Why Invest Private Credit Through Syfe? 

Syfe offers accredited investors unparalleled access to exclusive private market opportunities typically reserved for institutions. Through partnerships with top-tier global fund managers, clients can tap into high-quality private credit and fixed maturity strategies—targeting annualised yields of more than 10% per annum with thoughtfully structured liquidity. With accessible entry points from US$50,000, no upfront sales charges, and a limited-time 0% management fee, Syfe makes institutional-grade investing more cost-efficient than ever.

(*Target returns are not guaranteed and subject to market conditions. Liquidity varies by fund and may be subject to scheduled windows or notice periods.)

Syfe also provides a holistic, client-first advisory model delivered by non-commissioned professionals focused on long-term, multi-generational wealth planning. Tapping on their strong market expertise, our private wealth managers craft robust private credit analysis and management using strategies that offer strong downside protection. 

Experience independent and comprehensive wealth planning with our seasoned experts today.