Advisors Weigh What to Do About Private Credit Allocations
Amid the wave of redemption requests hitting private credit interval funds and BDCs, some advisors are backing away while others see an opportunity.
As private credit investment products designed for the wealth channel experience growing pains, financial advisors are taking a measured approach to the asset class, with some continuing to see opportunities amid the tumult while others rethink whether retail investors are suited for fundamentally illiquid investments.
That was the tenor of conversations throughout the three days of last week’s Wealth Management EDGE conference held at The Boca Raton resort in Boca Raton, Fla.
For Sam Huszczo, founder and CIO at SGH Wealth Management, private credit simply does not offer clients any benefit that they couldn’t access by investing in more stocks. And the fact that private credit funds tend to provide NAV estimates on a quarterly basis, often with limited transparency into how those NAVs are calculated, can obscure the losses these funds incur when the market goes down.
“To me, this is like going to a restaurant that doesn’t have any prices on the menu. Everybody is having a blast until the bill comes,” Huszczo said.
Since private credit is not going to offer downside protection in a downturn, what is the purpose of having it in a client’s portfolio, he asked. And even if clients insist they need private credit allocations because they’ve heard all the buzz, if the advisor does not believe they will add value, the right thing to do is to steer the client away from those.
“A portfolio should not just be a collection of investments—what you love and what speaks to you in that moment,” Huszczo said. “It should be a collection of solutions for future problems.”
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