The podcast features Liam McKinney, a strategist, and Brian Jacobson, Chief Economist, discussing the growing trend of private credit among wealthy investors. They note a nearly 25% increase in asset growth for forty act funds in 2024 compared to the previous year, highlighting the rising interest in this space.

Private credit, part of the alternative asset class, involves non-publicly traded debt or loans, often provided by non-bank lenders to small and mid-sized businesses. Historically, access to private lending required significant wealth, but newer structures, like perpetual funds, have lowered the entry barrier, allowing more investors to participate with smaller capital investments.

Key points include:

• Definition and Difference: Private credit differs from traditional credit as it involves non-publicly traded loans, often syndicated or direct, contrasting with the liquid, publicly traded debt in mutual funds or ETFs.
• Reasons for Growth: Post-2008 financial crisis regulations restricted banks' ability to lend to smaller businesses, creating opportunities for private credit firms. These firms can offer faster closings and better terms, often based on relationships, such as with private equity backers.
• Risks: Major risks include illiquidity (longer lockup periods compared to public market investments), higher credit risk due to the different profiles of borrowers, and less regulation, which relies on contractual agreements between parties. Perpetual structures mitigate some illiquidity by offering periodic withdrawal options.
• Due Diligence: Wealth management firms must conduct thorough research on private credit firms to ensure prudent lending practices, focusing on reputation, process, philosophy, track record, and pricing.
• Investor Motivation: Investors should allocate to private credit for strategic portfolio goals, not vanity. It can offer higher coupon income than public markets, but this comes with trade-offs like higher default risk and illiquidity. Proper diversification is crucial to manage these risks.
• Accessibility: Technological innovations, like perpetual structures pioneered in the late 1990s, have made private credit more accessible to retail investors by pooling smaller investments, meeting the demand from businesses unable to secure bank loans post-crisis.
• Industry Perspectives: Figures like Jamie Dimon express concern about private credit due to competition with banks and potential investor ignorance of risks, though his firm is also entering the space. Firms like Apollo see it as an opportunity to expand the investment universe, complementing traditional assets.

The podcast emphasizes that private credit can complement a portfolio (like jelly to peanut butter) rather than replace other assets, providing higher income potential if investors understand the risks and conduct proper due diligence. Listeners are encouraged to contact Annex Wealth Management for personalized advice.