WE Family Offices in Family Wealth Report: Cutting Through Sales Hype On Private Credit

May 8, 2024

The private credit sector is expanding rapidly, with assets under management in the U.S. reaching $1.6 trillion in June last year, expanding at an annual rate of 20% over the past five years. This boom has captured the attention of both wealth managers and investors. However, it raises a critical question: Does the enthusiasm for private credit align with the client’s best interests, especially if they are not fully aware of the benefits and risks of the asset class?

Michael Zeuner, managing partner at WE Family Offices, spoke to Family Wealth Report about the sector’s growth and role in investment portfolios, emphasizing the importance of managing costs and fees. “They [private assets] have a really important role, and they can add significant value to portfolios, but only if the right behaviors have been set.” Zeuner goes on to explain, “With private market funds, investors should expect a premium, after fees, of 200 to 300 basis points to compensate for illiquidity. With the use of feeder funds and other structures, this can add as much as 200 bps in fees over the life of an investment – there goes the illiquidity premium!” He also stressed the need for careful planning and diversification, encouraging investors to ask themselves, “Do you have tolerance for private market investment, and do you have the capacity?”

Matt Farrell, who leads the alternative investment research efforts at WE Family Offices, emphasizes personalized investment strategies: “We are hyper-focused on creating bespoke portfolios for clients,” he notes. Farrell prefers real estate debt for its equity-like returns and mentions a shift away from direct investing due to challenges in sectors like venture capital when interest rates rise.

Click here to read the entire article and learn more about the changing dynamics of private credit. As always, if you have any questions regarding the current market environment, please do not hesitate to contact us.