Private credit: Balancing income, risk and manager selection in client portfolios

At The Inside Network’s recent Income & Defensive Symposium, prominent figures in wealth management shared sharply defined views on the place of private credit in client portfolios. Charlie Viola, executive chair at Viola Private Wealth, and Craig Brooke, chief executive officer at KeyInvest, each spoke from the vantage point of allocating capital daily on behalf of investors, but approached the asset class with different emphases.

For Viola, private credit has been a core allocation for years. His firm manages around $3 billion, with $500 to $600 million in private debt and credit. He told delegates this is no accident. “We are very clear about where it belongs, which is the defensive end of the portfolio,” he said. That means favouring managers with low leverage, strong covenants, quality sponsors and a proven track record of returning capital with interest.

He stressed that asset allocation discipline is central to protecting clients. Not every client has exposure, but those that do receive a measured allocation, paired with rigorous due diligence. “Manager selection is key,” Viola said, noting that his team spends significant time understanding how a manager would behave if it had to step into the shoes of an equity-holder or work-through a distressed asset.

Liquidity concerns, in his view, are misplaced when the allocation is made correctly. “If I have put $200,000 into an asset expecting it to pay an 8 to 10 per cent coupon, and then two weeks later I want that money back, I have made a mistake in the conversation with the client,” he said. For him, illiquidity is not a flaw if it matches the portfolio’s design.

Brooke’s starting point was different, shaped by KeyInvest’s 50,000-member base, most aged between 50 and 90. He described their three consistent priorities: preserve capital, maintain diversification, and deliver stable, “boring” monthly income. Many arrive heavily weighted to term deposits, so his team sought ways to enhance returns without violating that risk profile.

KeyInvest undertook a systematic review of the Australian private credit landscape in 2022. Starting with 308 managers, Brooke’s team filtered out those with less than 10 years’ history, under $100 million in funds under management, or any record of failing to return capital on exited loans. This alone cut the field to 82. Applying a capital-guarantee lens reduced it further to 30 managers. 12 managers were left whose portfolios met stringent risk criteria.

The result, Brooke said, was a portfolio with an average loan duration of 11 months at inception and weighted average of five months remaining, yet still generating a return just above 9 per cent. “This can absolutely be done in the private market space,” he argued, provided advisers understand the opacity that still exists and push for consistent definitions and disclosures across managers.

Brooke also highlighted the changing role of banks, which still participate in lending but increasingly outsource origination to specialist managers. He noted that superannuation funds have $27 billion in private credit and are raising allocations. “If the largest fiduciary investors in the country are doing it, we need to understand why,” he said.

Viola agreed that the industry has matured since the global financial crisis, and that many of the failures of pre-GFC mortgage trusts are not being repeated. But he was blunt about the stakes: clients want recurring income to make work optional, and they do not want their capital “blown up.” Private credit, allocated properly, has delivered asymmetric risk and return in the past decade.

Both emphasised the centrality of trust in manager capability. For Viola, that means avoiding exotic structures and related-party exposures, and sticking with managers who can enforce covenants and recover value if things go wrong. For Brooke, it means knowing exactly how a manager has handled every loan to date, and keeping weighted durations short to retain flexibility.

Where they converged was in seeing private credit as a tool, not a panacea. Viola underscored that it is one part of the defensive sleeve, sitting alongside other income-producing assets. Brooke placed equal weight on its role within a capital-guarantee framework, as a complement to other fixed income sources.

For advisers, their combined message was apparent, private credit can meet core client objectives if it is approached with discipline, transparency and a deep understanding of both the manager and the end-investor. Illiquidity, concentration and opacity are not inevitable weaknesses, but risks to be managed. Done well, the asset class can offer steady income and capital protection in a way that public markets may not.

Laurence Parker-Brown

Laurence Parker-Brown is head of content at The Inside Network and managing editor of The Inside Adviser and Investor Strategy News.