Doug Keller, Head of Global Alternatives at T. Rowe Price, joined Keith Black, Managing Director of RIA Channel, at the CAIS Summit to discuss private credit allocations in a declining rate environment.
T. Rowe Price offers a full spectrum of long only and private market strategies, including a compelling world-class private credit capability sourced from the acquisition of Oak Hill Advisors in 2021. T. Rowe Price works with advisors on portfolio construction strategies including both private and public market allocations.
Private credit strategies typically earn higher income than public market investments. Investors have long been focused on income-generating strategies, even in the zero-interest-rate environment. If the Fed eases interest rates, demand for private credit is likely to continue, as most of the growth in the private credit asset class happened before the Fed started to tighten interest rates in 2022.
Most individual investors can handle some illiquidity in their portfolio, but Keller notes that it is important that they are paid appropriately for that liquidity. Advisors and their clients should view alternative investments in a portfolio construction context, perhaps moving some allocation from public fixed income to private credit. Institutional-quality private credit strategies have only been available to retail investors for the last three to four years. Allocations to private credit are likely to accelerate, as an increasing number of home office model portfolios are recommending allocations to alternative investments and private credit.
Floating rate loans have lower interest rate duration, which can differentiate from fixed income returns in a rising rate environment. In a declining rate environment, investors need to remember that private credit loans are priced at higher credit spreads than public credit. Spreads are likely to remain wider, even in a declining rate environment
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