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Red flags raised as investors migrate to private credit funds 

November 14, 2016

Arleen Jacobius, Pensions & Investments

Investors are turning to private credit for the yield that fixed income used to provide, but some observers worry the sector is too risky to be a stand-in for bonds.

Years of low to below-zero interest rates are taking a bite out of investors' fixed-income returns, pushing asset owners to search for yield. Private credit managers have been a beneficiary of this search for a higher yielding fixed-income proxy. They have a record $199 billion in committed but unspent assets as of June 30, according to London-based alternative investment research firm Preqin.

Two of the biggest concerns cited are illiquidity and the risk of default by the companies receiving the loans from the private credit funds.

“Private credit is not the safety net I consider core fixed income to be,” said Amy Schondra, director and head of the private equity team at outsourced CIO firm Hirtle Callaghan & Co., West Conshohocken, Pa. “I just don't believe that you can sell this as a proxy for fixed income. If you need liquidity it won't be there.” Read more

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