Private Credit: What High-Net-Worth Families Need to Know
In recent years, a subtle shift has been occurring in high-net-worth portfolios. More and more sophisticated investors are looking beyond traditional stocks and bonds and turning to alternative options, including private credit, as a compelling alternative. By doing so, investors can add investments with different influences and behaviors to create a more balanced portfolio.
But what exactly is private credit? Why is it suddenly in the spotlight? And most importantly, is it right for your portfolio?
At Richard P. Slaughter Associates, we believe high-net-worth families deserve access to institutional-quality ideas and clear, personalized guidance to help them evaluate these options. Here’s what you should know about private credit.
What Is Private Credit?
Private credit refers to loans made by non-bank lenders to companies, often outside of the traditional public bond market. Instead of buying a bond issued by a Fortune 500 company, you’re investing in a debt opportunity. Typically, this takes the form of a loan to a privately held business, real estate project, or other venture.
These are typically short- to medium-term loans, often secured by assets, and designed to generate attractive yields. Investors receive interest payments and, in some cases, participate in other benefits like fees or equity kickers.
In short, it’s a way to play the role of a lender at a time when banks have pulled back from the market.
Why It’s Gaining Popularity
In a world where traditional bonds have struggled to keep up with inflation, private credit has drawn attention for one reason: yield.
Some private credit strategies offer higher income potential as compared to more traditional fixed income instruments, like publicly traded bonds or CD’s, due to the loan’s often more complex and less liquid traits. Investors who are capable of having a portion of their overall portfolio allocated to less liquid strategies are compensated with higher yields.
But it’s not just about income. For many families, private credit can add diversification and downside protection to a broader portfolio. The returns are less correlated to public equity markets, and the structures often include covenants and collateral designed to protect the lender’s interests.
Is It Safe? Is It Liquid? What Are the Risks?
These are always great questions to ask, and why we never recommend jumping into alternatives without a full review and understanding of the risks.
Private credit is not risk-free. While many deals are well-structured and secured, defaults can occur. Such transactions are often senior secured loans, meaning they are backed by specified assets of the borrower. Workouts and restructurings are commonly pursued before formal defaults lead to liquidation.
Illiquidity is another consideration. Your money can be tied up for several years, depending on the strategy. Transparency and manager quality also vary widely, which is why we work with clients to evaluate not just the potential returns but the track record of the managers, the underwriting process, the risk mitigation measures, and how each opportunity fits within our client’s total financial picture.
Private credit isn’t a replacement for core holdings. It should be viewed as a complement to your overall wealth strategy and used with care and intention.
Where It Fits in a Thoughtful Strategy
For families who already have a strong foundation — traditional investments, cash reserves, and estate plans — private credit can serve as a powerful income-generating layer.
We typically introduce private credit to clients looking to:
- Enhance yield in low-rate environments
- Reduce reliance on volatile equity markets
- Diversify into alternatives without assuming equity-like risk
- Align parts of their portfolio with longer-term goals (such as generational planning or trust structures)
The key is customization. Not every private credit strategy is created equal, and not every investor needs this type of exposure. However, when carefully selected, private credit opportunities can make a meaningful contribution to long-term wealth preservation and growth.
Our Approach to Alternatives
At Richard P. Slaughter Associates, we take our role as fiduciaries seriously. That means no product pushes and no cookie-cutter allocations. The advice we provide is tailored to your goals, rooted in research, and aligned with your vision of success.
When we explore private credit on your behalf, we conduct due diligence across multiple fronts:
- Manager quality and experience
- Loan structure and collateral
- Risk-adjusted return potential
- Liquidity and time horizon
- How it fits into your broader plan
Most importantly, we walk alongside you through the entire process, from education to selection to monitoring.
With the right strategy and advisor, private credit can be a meaningful way to round out a sophisticated, income-generating portfolio. However, as with any opportunity, success depends on a good fit. If you’re wondering whether private credit has a place in your plan, we’re here to explore that with you — thoughtfully, clearly, and always in your best interest.