Debunking myths in private credit

INTEREST in private credit is growing in the Asia-Pacific region, with the private credit market poised to grow from US$59 billion in 2024 to US$92 billion by 2027, said a new report from the Alternative Investment Management Association. But is private credit – or more broadly speaking, private markets – the “promised land” that offers what investors seek in their portfolio?

As private credit funds gain traction, investors should beware of aggressive marketing and slick sales pitches. While the sales pitches may be slick, investors should nonetheless tread with caution. Using generative artificial intelligence tools to review marketing materials from private credit funds (see word cloud below), Morningstar identified several recurring themes.

These commonly promoted narratives include claims that private credit offers: one, lower volatility; two, diversification benefits; three, lower risk than high-yield bonds; four, strong loss protection; and five, protection against interest rate volatility. Here we put these claims under scrutiny.