Advisers are ready for the private credit era, but are their clients?

Alongside growth’s dominance over value, dramatic inflationary swings, and the incongruous correlation of bonds and equities, investment’s most ubiquitous narrative in recent years is the ascendancy of private credit and its increasing prevalence in the alternative sleeves of retail, wholesale an institutional investors alike.

Advisers have largely been along for the journey, with private credit emerging as an alternative alternative to private equity, one that touches on the burgeoning private capital sector without veering into the wilds of high-risk venture capitalism.

But while private credit brings the broader private markets world to the masses, it’s growth has brought into question whether clients know enough about it to be invested in it.

Private equity is a relatively straightforward concept for an adviser to explain, especially if it sits as a small, idiosyncratic holding in a portfolio. But add private credit to the mix, and an adviser will usually need to bring the whiteboard out, write PRIVATE MARKETS up top, underline it and start explaining how non-bank credit, equity and VC all fit together.

According to the global private markets investment firm Hamilton Lane, which surveyed 230 financial advisers across the world, 97 per cent report either advanced (55 per cent) or intermediate (42 per cent) understanding of private markets.

But while advisers understand them well enough, clients are much further behind. They understand the benefit of holding alternatives, but not enough about how each of them work.

“50 per cent of advisers rate their clients’ knowledge about private markets investments as beginner or having little to no knowledge of the asset class – requiring basic education, despite their strong interest in the asset class,” the report revealed.

“Only 4 per cent of advisers rated their clients’ knowledge about private markets as advanced, or well versed in the asset class and confident in talking about private market details, trends and products. In other words, there is an opportunity to increase end investors’ private markets knowledge.”

According to Hamilton Lane head of private wealth solutions Steve Brennan (pictured), private markets’ rapid growth means there is a clear need for retail education.

“We’ve found that a foundational understanding of the asset class affirms initial interest from new investors and contributes to a sustained investing appetite for those who are already allocated,” Brennan stated.

“We anticipate that, as private wealth investors become more knowledgeable about and familiar with the asset class, private markets allocations will likely also increase.”