Private Credit: Consistency is Key

September 16, 2021

We are all familiar with adages like “consistency is the key to success” and “excellence is mundane”. For private credit, consistent returns achieved in a straightforward way bring these statements to life. Recent data¹ has shown that from 2004 to 2021, U.S. private credit has generated positive or flat performance throughout the economic cycle – from expansion, to late cycle cooling, through a recession and into a turnaround. The same cannot be said for U.S. high yield and leveraged loans, which have historically contracted during recessionary periods. Private credit has outperformed both high yield and leveraged loans during expansionary and late cycle stages, only underperforming in the turnaround phase when the ISM Manufacturing Index is less than 50 and rising. The straightforward, perhaps ordinary nature of these loans, loans to businesses from non-bank lenders, makes the asset class even more interesting in our opinion. Marquette advocates allocating to private credit in order to capture two premiums – yield premium and structure premium – which are especially compelling in today’s low interest rate environment. Moreover, the data shown in the chart above gives quantifiable evidence that the asset class is also a solid diversifier to a traditional fixed income allocation. We continue to find attractive managers and strategies in the market for investors who already have a dedicated private credit allocation and would be happy to further discuss with others interested in the space.

¹https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-alternatives/mi-guide-to-alternatives.pdf

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.