Following last week’s discussion on the benefits of private real estate in building portfolio stability, this week’s commentary highlights another important and often overlooked alternative asset class: private credit.

While traditional portfolios allocate roughly 30–40% to fixed income, the last few years have shown that bonds have faced significant challenges amid high inflation and rising interest rates. The conventional wisdom has been to “stay the course” with fixed income despite its underwhelming performance, largely because investors believed there was no better option. But what if investors had access to a compelling alternative?

Private credit has emerged as a powerful solution, particularly since the 2007-08 financial crisis. As banks tightened lending standards to meet regulatory demands, private lenders stepped in to provide capital to businesses with flexible, tailored financing solutions. Unlike banks’ standardized approach, private credit lenders evaluate each opportunity uniquely, offering terms customized to borrowers’ needs.

For investors, private credit can offer a mix of attractive yields, portfolio diversification, and downside protection. Because these investments are not publicly traded, they’re less sensitive to daily market volatility, often resulting in steadier returns. Additionally, private credit exposes investors to companies not accessible through public markets, broadening portfolio diversification.

One reason many investors haven’t heard much about private credit is the slow pace of innovation and adoption among traditional financial institutions. Large institutions, including banks, and traditional advisors tend to “stay in their lane,” often waiting for investment ideas to become mainstream before adopting them.

A prime example is the ETF (exchange-traded fund) market, which was initially overlooked by traditional players and has since grown into a global industry exceeding US$12 trillion in assets. This cautious approach means that many retail investors may still be unaware of the benefits that alternative asset classes like private credit can bring.

Institutional investors such as pension funds and endowments have long recognized these benefits, but retail investors have traditionally faced barriers like high minimums and limited availability. However, as demand grows and access improves, private credit is increasingly becoming an essential component for investors seeking enhanced income and risk-adjusted returns.

Key advantages include:

• Enhanced, more reliable income driven by the “uniqueness” of private deals
• Low correlation to traditional stocks and bonds, offering meaningful risk reduction and improved portfolio stability
• Broad diversification across industries, regions, and borrowers, adding depth and resilience to the portfolio

Together with private real estate, private credit has formed a cornerstone of our portfolios and continues to offer a diversified alternative asset allocation – one designed to navigate today’s uncertain markets and help build long-term wealth.

If you have questions or you’d like to learn more, please don’t hesitate to reach out.