Private credit is considered an alternative asset class, along with real estate investments, private equity, hedge funds, commodities like gold and silver, infrastructure, collectibles, and digital assets.
The recommended allocation to alternative assets in a financial portfolio can vary depending on your goals, risk tolerance, investment horizon, and overall financial situation.
Factors to Consider:
- Risk Tolerance: Investors with a higher risk tolerance may allocate more to alternative assets, while those with lower risk tolerance should allocate less.
- Investment Horizon: Longer investment horizons can justify higher allocations to alternatives, as these assets often require patience to realize their full potential.
- Liquidity Needs: Typically investors with immediate liquidity needs should limit their exposure to illiquid alternative assets. We aim to fulfill redemption requests on a quarterly, best-effort basis and we don’t have a lockup period which is common for other private credit investments.
- Diversification: For many investors, one goal of adding alternative assets is to diversify their portfolio and reduce overall risk. Investors may adjust their allocation to alternatives to complement other asset classes in their portfolio.
Example Allocations
To get a sense of the range you might consider allocating to alternatives, institutional investors like pension funds, hedge funds, and asset managers allocate 3-30% of their investments to private credit. A conservative approach might be on the low end of that range, and an aggressive approach might be on the high end. Here are some examples:
- Conservative: 5% to 10% in alternatives.
- Moderate: 10% to 20% in alternatives.
- Aggressive: 20% to 40% in alternatives.
It’s important to note that these are general guidelines and individual circumstances will vary. Investors should consult with a financial advisor to determine the most appropriate allocation to alternative assets based on their specific financial situation, goals, and risk tolerance.