Private Credit Investing in Volatile Times

Jim Vanek explains why the demand for private credit remains strong and is expected to be reinforced by economic uncertainty. 

Key Takeaways

• While not immune to the shifts in policy and the macroeconomic outlook, we expect to see resilient demand for private credit as the need for direct,  larger, and more flexible financing remains and is  likely reinforced by economic uncertainty. 
• The leveraged credit market primarily finances domestic companies focused on sectors that are less directly impacted by tariffs—giving investors a chance to build portfolios that can better withstand periods of lower economic activity. 
• Sharp focus on senior secured, first-lien debt is always important but paramount in the current environment. Downside risks to the US economy mean increased cash-flow pressure and liquidity constraints across many segments of the market.  
• Historically, private credit has shown resilience in  times of market stress and provided relative downside protection with low correlation to other major asset classes. A focus on lending to large corporates can add another layer of protection, financing businesses with stronger cash flows, diversified earnings streams and  well-established business models. 
• Our work highlights a modern approach to core-plus allocations, showing that the addition of private credit to a portfolio of public fixed-income securities can enhance risk-adjusted returns.