Written by Marcel Schindler, Partner & Head of Private Debt, at StepStone Private Wealth
Private credit has long been a cornerstone of institutional portfolios—and according to Mercer’s Investments’ Large Asset Owner Barometer 2025, it’s poised to attract the largest inflows of any asset class next year. Now, with the rise of semi-liquid and evergreen fund structures, this once-exclusive asset class is becoming increasingly accessible to individual investors.
The expansion of wealth into private credit has prompted debate. For some, it marks an overdue democratisation of private markets and offers access to untapped capital, but for others, it raises questions. Concerns around access to information, complexity, and liquidity are nothing new, nor unique to individual investors. These are considerations that the world’s largest institutions face every day.
For years, professional investors have been building processes to evaluate credit opportunities in environments that require a higher degree of scrutiny and understanding. The same principles can apply here too. As access broadens, wealth advisers are now in a position to guide clients through a space that rewards clarity, diligence, and perspective.
Why private credit?
For decades, investors relied on a classical 60/40 portfolio model of fixed income and equities but in recent years, the diversification benefits of this approach have been hampered by consistently positive correlations between the two. Adding private credit offers an alternative source of diversification, providing fixed income like distribution with low volatility while having the potential to produce equity like returns. But unlike traditional fixed income, private credit reflects a shift in how capital is being deployed – filling gaps left by banks retreating from mid-market lending and public markets not being able to offer the necessary structural flexibility.
Private credit includes various strategies, but one of the most widely used is leveraged loans. These are loans made to mid-sized companies, typically by non-bank lenders, and often used for acquisitions, growth or recapitalisations. Most of these instruments are at the top of the capital structure, being senior secured, first-lien debt, which means in the event of borrower distress, these lenders are first in line for repayment.
From a risk perspective, this is a significant advantage that may provide downside protection in case of defaults. Historical default rates across private credit have been relatively low, even in times of stress. In Europe, recorded default rates for leveraged loans are less than 2%. Although some have argued that this loan type is yet to be stress tested even under higher default assumptions these loans provide better downside protection than traditional asset classes.
On a macroeconomic level, investors today are grappling with persistent “known unknowns” – tariff uncertainty, inflationary and deflationary pressures, and geopolitical volatility and lower growth expectations – making assets offering steady, risk-adjusted returns more valuable than ever. With most leveraged loans issued on a floating rate basis, their coupon payments move in line with central bank base rates, offering a useful hedge in inflationary environments like the one we’re navigating today.
Managing liquidity risks and considerations
The widening access to private markets brings new responsibilities for advisers. Semi-liquid and evergreen private market structures require more thoughtful due diligence and clearer communication than some traditional strategies. Even when, among all private market strategies, Private Credit offers the most suitable liquidity features, advisers who want to offer clients a meaningful foothold in private markets must be prepared to assess quality, default risk, redemption terms, and governance structures, and explain the nuances of these vehicles to inexperienced retail investors.
Product innovation is rising to address residual concerns. Many of today’s semi-liquid funds offer quarterly liquidity windows, capped redemptions, and mechanisms to avoid forced selling or price distortions – characteristics that are more aligned to the needs of a wealth audience – while still providing access to the same private credit opportunities available to institutional investors.
At the same time, suitability remains paramount. Private credit funds may not be appropriate for all clients, particularly those requiring daily liquidity or with low risk tolerance. Advisers must carefully match fund characteristics with client goals, ensuring full transparency on the trade-offs involved. Liquidity, administration, fees, underlying asset quality, and historical default rates should all form part of an ongoing due diligence checklist.
A tested strategy for a broader base
Private credit is nothing new, it’s a time-tested cornerstone of institutional portfolios that is simply reaching a new audience. Individual investors can now access the same credit strategies that institutions have long used to generate resilient, risk-adjusted returns, benefitting from an instrument that provides significant downside protection, even in periods of heightened stress and particularly across European markets.
As we continue through a cycle defined by “known unknowns”, from inflationary pressures to geopolitical tensions, private credit offers a combination of yield, resilience, and inflation-hedging that is hard to ignore. The tools are now in place for advisers and their clients to access institutional-grade solutions through structures designed for wealth portfolios. The responsibility, and the opportunity, rests with those ready to guide clients through them.
