CPD: The investment case for US middle market private credit
Interest in alternative asset classes is intensifying as advisers look to improve the return profiles of client portfolios in an increasingly challenging environment. The universe of non-publicly traded debt and equity comprises a wide array of sectors with unique structures and risk-return profiles.
One asset class that has gained significant traction over the past decade is private credit. Much has been written lately about the huge increase in the number of private credit funds available to Australian investors.
As with all asset classes, there are diversification opportunities within the private credit sector and it is important that advisers, and their clients, understand the private credit exposure each sector – and each fund – offers.
Within the expanding private credit sector, the US middle market stands out as a particularly compelling segment. Comprised of businesses typically earning US$10 million to US$100 million in EBITDA, the US middle market sector offers a unique combination of structural advantages, attractive yields and reduced correlation to public assets.
For clients seeking stable, income-generating assets with strong risk-adjusted returns, as well as low correlation with traditional asset classes, US middle market private credit represents a growing and underappreciated opportunity. An allocation to US middle market private credit can be added to a diversified portfolio as a complement to other private market loan segments.