Alex Wright, Global Wealth Strategist for Apollo Global Management, joined Keith Black, Managing Director of RIA Channel, to discuss diversification by adding private market investments, such as private credit.
Apollo is advising investors to make 2025 a year of diversification by adding allocations to private markets. Adding allocations to private equity, private credit, and/or real assets can provide investors with broader diversification and likely lower portfolio volatility. The US public equity market is becoming increasingly concentrated, with lofty valuation levels measured by forward price-to-earnings ratios. The US public credit market has been experiencing the tightest credit spreads in more than 20 years in both the investment grade and high-yield sectors.
Wright states that private credit still offers very good risk-adjusted returns, despite offering lower spreads than the abnormally high spreads offered in 2022 and 2023. With spreads near 500 basis points today, private credit strategies may offer total unlevered returns of 9% to 11%. On a relative value basis, Wright sees private credit as attractive, especially given loan-to-value ratios as low as 40% on secured loans. Most private credit loans sit at the top of the capital structure as senior secured loans. The public high-yield market offers unsecured debt, duration risk of over four years, and spreads on unsecured BB credits tighter than secured loans in private credit.
When performing due diligence on private credit managers, Wright notes that advisors need to understand the specific investment strategy. Questions to ask include: Are the loans being made to smaller or larger companies? Is the specific manager able to maintain underwriting discipline in times of rising asset flows? Are the documentations and covenants remaining tight?
WEBCAST – Private Credit Investing in Volatile Times
Watch Jim Vanek, Co-Head of Apollo’s Global Performing Credit business, discuss his views on investing in private credit at a time of high volatility.
In this class, Jim will cover:
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- Current landscape for rates, spreads, and expectations going forward
- State of demand for private credit
- Where is capital being deployed today and why?
- Thoughts on a modern approach to core-plus fixed income investing
Accepted for 1 CFP / IWI / CFA CE Credit