Let’s work together to find a solution
Rely on AVANA Capital to help preserve your wealth and create growth for your business.
Private credit has grown from $280 billion in 2007 to over $1.5 trillion today. Yet, many investors still overlook it. Why? Persistent myths and outdated assumptions,
In today’s evolving financial landscape, private credit offers a compelling mix of income, stability and diversification – qualities that traditional assets often struggle to deliver. Let’s examine the most common misconceptions.
Myth: Private Credit Lacks Transparency
Many investors assume private credit is a black box when compared to public markets. That’s simply not true.
Good private credit managers tell you exactly what they own. Reputable firms provide quarterly reports showing the specific properties and businesses that back each loan. Meanwhile, holdings change constantly with public bond funds. As a result, the holdings change constantly, and you rarely know what you actually own.
Private credit offers deep insight and direct relationships, not guesswork.
Private credit due diligence includes knowing and meeting borrowers face to face. Properties are walked and examined and the borrowers finances are scrutinized. This direct relationship provides information you’ll never get from buying anonymous bonds.
Myth: It’s Too Vulnerable to Recessions
Investors worry that alternative assets may collapse in downturns. The numbers tell a different story.
During COVID, KKR found private credit fell significantly less against other market peers while also benefiting from lower volatility. Why? Secured, private loans rank higher in who gets paid first, and real property backs them up. While there is still a risk of default, there is more potential for higher returns.
Experienced managers do their homework before writing a check. They examine both the property value and the borrower’s finances. Loan amounts are kept well below property values, building in protection if markets drop. This rigorous underwriting and analytical discipline has helped to keep returns steady through good markets and bad.
Myth: You Need Millions To Get Started
Once limited to large institutions, private credit is now more accessible than ever.
Many funds now welcome qualified investors at lower starting amounts. The industry keeps creating new ways for more people to participate without cutting corners. Rules still exist about who can invest, but the price of entry to these private investments has gotten much smaller, and accredited investor requirements may loosen in the medium-term future.
Myth: Private Credit Is Too Risky
Yes, private credit carries risk – like any investment. But risk can be carefully managed, with opportunities ranging from ultra-conservative senior loans to higher-return strategies.
The most knowledgeable lenders manage risk through strict underwriting standards, diversified investments across multiple industries, and meticulous monitoring.
Most private loans have floating rates that rise when interest rates go up—a natural shield against inflation that regular bonds might not offer.
The Bottom Line
With experienced management, private credit can be a stable, income-generating complement to stocks and bonds.
Private credit can help prompt portfolio diversification and potentially higher returns, than conventional bonds. With reduced correlation to public markets, investors could tap into potentially reliable income that doesn’t swing wildly with the stock market.
Explore how AVANA Companies’ private credit strategy can support your goals. Contact us to learn how loans backed by real properties could improve your investment returns with less drama than stocks and bonds, or email cathy.ellsworth@avanacompanies.com with any questions.