Advisors in the Middle: Translating the Private Credit Boom

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Private credit was accessible for a long time, through endowments, pensions, and sovereign wealth funds. Far from Main Street, deals were made behind closed doors, by institutions big and sophisticated enough to evaluate opaque risks.

That is no longer the case. These days, advisors and their clients are directly marketed private credit through interval funds and tender-offer structures. This change raises an important question: What should you say to a client who asks about these products?

Burying them in acronyms is not the solution. The objectives are to remove jargon, establish realistic expectations, and keep clients from being caught off guard in the future.

The Buzz and Boom

Private credit has grown significantly. The market was worth less than $400 billion 10 years ago. It is currently valued at more than $1.5 trillion, and projections suggest that it could rise to $2.5 trillion in the years to come.

Numerous factors have contributed to this boom. First, following the global financial crisis, banks drastically cut back on corporate lending. Second, following 10 years of nearly-zero interest rates, investors were looking for yield wherever they could. Finally, asset managers exploited the opportunity to "democratize" private credit by bringing institutionally exclusive strategies into retail channels.

Private credit has quietly transformed from a boutique strategy into a trillion-dollar market. Advisors should be prepared to guide clients through what this shift means for them.

Why Consumers Are Asking

Clients keep hearing the same themes about private credit: promises of 8–11% yields, reassurances that it’s steadier than stocks, and claims that it diversifies away from public markets. There’s also the allure of prestige. The pitch of “investing like institutions” is now being marketed as newly open to retail investors, giving it an air of exclusivity.

Picture the client leaning in across the table: “I’ve heard you can earn double-digit returns with less risk. Don’t we need to be involved?”

That’s not a question to brush off. It’s your responsibility to give a clear, grounded explanation of the realities — and the trade-offs — that come with private credit.

What Advisors Need to Say

Four brief, client-ready messages can help set the right tone for these conversations.

First, remember that credit is still being given. Mid-sized companies, such as manufacturers, service providers, and regional hospitals, are receiving loans from these funds. Repayment is solely influenced by the borrower's financial stability. In other words, “You’re not buying debt from Coca-Cola.” Rather, you’re making a loan to a business you’ve never heard of.

Second, there are always trade-offs associated with higher yields. Private credit has a higher default risk and provides significantly less liquidity than investment-grade bonds. In short, higher yields aren’t free; they’re the cost of taking on more risk.

Third, smooth returns are not the same as safe returns. Since private credit isn’t marked-to-market every day, performance could appear unusually stable. That stability is often misleading. Losses might be accruing in the background and not showing up for some time.

Fourth, structures are crucial. For example, interval funds often only permit redemptions once every three months, and sometimes only for a small portion of the fund. This structure purposefully produces illiquidity.

When combined, these ideas offer advisors a straightforward yet effective framework for discussions with clients. Although private credit may seem alluring, there are trade-offs associated with it, including higher yields, less liquidity, opaque valuations, and cycle sensitivity. Clients are better able to see past the sales pitch and comprehend what they are actually thinking about when these realities are presented in simple terms.

Suitability Is Key

When it fits with the investor’s investment goals, private credit is still not a substitute for core bonds. It can complement traditional fixed income, but it shouldn’t replace the ballast that high-quality bonds provide in a portfolio.

Private credit works best as a side dish, not the entrée. It can enhance yield and diversification, but it shouldn’t be the centerpiece.

Generally, private credit is a poor match for investors who need daily liquidity, can’t tolerate price swings, or rely on predictable cash flows. It also doesn’t belong in portfolios where the primary role of fixed income is capital preservation.

The key is framing: Private credit can be a useful tool, but only when its strengths — and limits — are clearly understood.

Advisors Should Question Managers

The best way to cut through glossy presentations is by asking pointed questions.

To what extent are the fund's loans concentrated?
Which industries or geographical areas make up the majority of the portfolio?
How are borrowers who are under stress handled and resolved?
How are redemptions managed when things are erratic?
Do managers put their own money into investments alongside their clients?

The point isn’t to play detective — it’s to lead. By asking the right questions, you set the tone: This is your client’s money, and you’re making sure it’s managed with transparency and accountability.

A systemic collapse is not necessarily the biggest threat to private credit. Clients misunderstanding what they now own is the more urgent risk. Some anticipate bond-like safety along with equity-like returns. Some people believe that “low volatility” equates to “no downside.” Even with gates or caps in place, many people think they can redeem every day. And when perception outpaces reality, advisors are left managing disappointment and strained trust.

The Benefit of Advisors

Private credit is making its way into retail portfolios. Advisors who ignore it risk looking out of touch, while those who oversell it risk credibility when the cycle turns.

The best approach is balance. Understand the appeal. Explain the trade-offs. Place it appropriately in the portfolio. Above all, be explicit about your expectations.

Consumers are not in need of hype. They need clarity. That clarity is the advisor’s responsibility.

Last Word

Private credit has moved from the backroom to the living room. Today it shows up in retirement plan decks, CNBC soundbites, and client conversations. But that doesn’t make it a miracle asset class — just another tool that needs to be explained with transparency, integrity, and composure.

Advisors who keep clients grounded, translate the hype into reality, and build trust will be the ones who stand out when the cycle eventually turns.

Charles Urquhart is the founder of Fixed Income Resources.

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