The private credit run isn’t over, says Nuveen. Here’s how to invest
There’s a lot to like about private credit these days, according to Nuveen. The alternative assets have become increasingly popular among investors and Nuveen expects inflows and strong returns to continue. “The private credit run isn’t over yet,” Saira Malik, the asset manager’s chief investment officer and head of equities and fixed income, wrote in a recent report. “Investor interest remains high, demand is strong, deal volume continues to rise and we expect M & A activity to increase, which should act as a continued tailwind,” she added. “We also think some private credit transactions should be able to increase leverage ratios as interest rates decline, which could make these deals more compelling.” Lower interest rates should also improve the debt service coverage ratios of businesses, Malik noted. The assets under management in private debt is forecast to reach $2.64 trillion by 2029, up from the $1.5 trillion in 2023, according to Preqin . Returns are expected to rise further, the firm said. How to invest While private credit is largely seen as an instrument for institutional investors, individual investors have also been moving into the space. “If you look back over the last 10 years, the story’s really been institutional,” said Ken Kencel, president and CEO of Churchill Asset Management, the private capital business for Nuveen. “Over the next 10 years, I think the story is going to be much more about the democratization of private credit.” As more individual investors show interest, large-scale investment managers in private credit are going to increasingly focus on how they can access capital from those investors, said Kencel, who focuses on middle-market direct lending in private credit. One way Main Street can gain access is through a type of closed-end fund which is less liquid than open-end mutual funds and may have minimum investments. Closed-end fund Blackstone Private Credit Fund (BCRED), for example, requires investors have a gross annual income of at least $70,000 and a net worth of at least $70,000, or a net worth of at least $250,000. Unlike other closed-end funds, its shares are not traded on a public exchange and it’s categorized as a business development company (BDCs). Blackstone Private Credit’s S-shares usually have a minimum investment of $2,500, although some brokers can set a higher threshold. The fund has a 9.5% annualized distribution yield, as of September. Meanwhile, A-shares of the Franklin BSP Private Credit Fund have a $2,500 minimum investment and a 8.96% annualized distribution rate, as of Oct. 15. Investors can get daily liquidity by investing in exchange-traded BDC stocks, which are companies that lend money to businesses. Some well-known BDCs include Ares Capital Corp , Blackstone Secured Lending Fund and Blue Owl Capital Corporation . However, investors should do their homework — and not just chase the highest yields, Kencel said. “They should focus on the managers that have a longstanding track record, that have significant capital under management, that have … the scale and the scope of the teams in order to be able to do a world class job,” he said. Nuveen and Churchill’s publicly traded BDC is Nuveen Churchill Direct Lending Corp , which has a 12.3% annualized distribution yield and a $2 billion investment portfolio. It also has a publicly registered, private BDC that can be accessed through financial advisors or third-party platforms. Private BDCs are less liquid than publicly traded ones, he noted. “Every direct lender is a little bit different, but we tend to be more traditional and more conservative in the way that we invest,” Kencel said. The team focuses on more senior, secured first-lien loans at the top of the capital structure, as well as on companies that are owned or controlled by private equity where there is typically a significant amount of equity capital investment in the business. He also likes non-cyclical businesses with strong free cash flow. “We think the sweet spot, if you will, are companies in this core middle market … large enough to have scale and market-leading position, but not so large as to be in a position where they’re really more of a syndicated, traded loan,” Kencel said.
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