Private Credit: Consistency is Key

September 16, 2021 | Brett Graffy, CAIA, Senior Research Analyst

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

Print PDF > Private Credit – Consistency is Key

 

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.

Brett Graffy, CAIA
Senior Research Analyst

Get to Know Brett

Related Content

10.14.2021

The Impact of the Delta Variant on the U.S. Economic Reopening

Thanks to a rollout of effective vaccines at the beginning of 2021, daily new cases of COVID-19 in the United…

10.06.2021

Commodities: The Full Story

The first three quarters of 2021 have seen positive performance from a variety of asset classes ranging from U.S. and…

Graphic of darkened photo of city buildings, with guidance pattern overlay and "Q3 2021 Market Insights" in white.

10.01.2021

Q3 2021 Market Insights Video

— COMING OCTOBER 21st — This video will feature an in-depth analysis of the third quarter’s performance…

Column chart showing Realized Rates for the 10-Year Treasury Yield following the Taper Tantrum of 2013 and the current Forward Rates as of September 28, 2021. Chart subtitle: While the market is expecting yields to rise with Fed tapering, current Treasury forward rates indicate that near-term movements in the 10-year Treasury may be less pronounced than those exhibited during the 2013 Taper Tantrum. Description: Y-axis shows 10-Year Treasury Yield by percentage, from 1.0% to 3.0%. X-axes shows five categories: Spot Rate, 1 Month Later, 3 Months Later, 6 Months Later, and 9 Months Later. April 13 (Realized Rates) columns are at left in each category displayed in purple, and September 2021 (Forward Rates) are at right in teal. Spot Rate 1.70% in 2013, 1.50% in 2021. 1 Month: 2.13%, 1.52%. 3 Month: 2.61%, 1.56%. 6 Month: 2.53%, 1.62%. 9 Month 2.69%, 1.68%. Chart sources: Bloomberg and Federal Reserve Bank of St. Louis, as of September 28, 2021.

09.30.2021

What Does Fed Tapering Mean for U.S. Yields?

Last week, Federal Reserve Chair Jerome Powell indicated the potential tapering of bond purchases at some point in the future…

09.22.2021

Multifamily Matters

Amid ongoing vaccination progress and an improving U.S. economy, we are seeing a recovery across property sectors – those that…

09.08.2021

Taking the PEPP Out of the Eurozone’s Recovery?

Amid concerns over the Delta variant and signs of a sharp slowdown in the global economic rebound, many central banks…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >