There’s a lot to like about private credit right now, according to UBS. Once reserved for institutional investors, the asset class has become popular among individual investors seeking attractive yields. “We still have defaults very low on the private credit side, lower than what we’re seeing on public. The leverage is low on private credit, and you’re still able to earn, say, anywhere between a 10% to 11% yield,” said Leslie Falconio, head of taxable fixed-income strategy in UBS Americas’ chief investment office. There is also a lot of dry powder, or money available to invest, she noted. While M & A was low in the first quarter of 2024 and banks re-entered the funding space this year, UBS expects private credit to remain a significant source of funding. “Deploying capital in a more patient and opportunistic manner should be a tailwind to future performance,” Falconio and the CIO team wrote in a report last week. Investors can gain access to private credit through closed-end funds, which are less liquid than open-end funds. Some funds require investors to have a minimum investment of $1 million, but others have lower barriers to entry. For instance, Blackstone Private Credit Fund (BCRED) requires investors to have a gross annual income of at least $70,000 and a net worth of at least $70,000 or a net worth of at least $250,000. Its S-shares are available through brokerage accounts and have a 9.5% annualized distribution yield, as of May. Meanwhile, A-shares of the Franklin BSP Private Credit Fund have a $2,500 minimum investment and a 7.84% annualized distribution rate, as of March 31. Be selective Still, investors should be picky when it comes to investing in a fund, Falconio said. They should stick with those that have stability and avoid the smaller, newer entrants, she said. “With private credit, you don’t know how things might change going forward,” she explained. “You want to go into funds that have been around for a while, have a track record, have the infrastructure and have the individuals in place, because it can be a very labor intensive product.” In fact, it is those less-established, smaller funds that she believes are the target of critics . One of those who have voiced concerns is JPMorgan CEO Jamie Dimon. “Do you want to give access to retail clients or some of these less liquid products? Well, the answer is probably â but don’t act like there’s no risk with that,” he said at a conference in late May. While there are some good players in private credit, there are others who are not, he said. “There could be hell to pay,” Dimon warned. Investing in BDCs Another way to get exposure to private credit is by investing in the public stocks of the business development companies, or BDCs, that are doing the private lending. They pay attractive yields but are riskier companies. Here are some of the BDCs on the stock market. Investors can also get broad diversification to the sector through the VanEck BDC Income ETF , but it comes at a steep cost. The fund, which has $1.15 billion in total net assets, has a total expense ratio of a whopping 11.17% and a 30-day SEC yield of 10.14%.
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