Private Credit Is Coming to 401(k) Plans. These Are the Alternative Asset Managers Set to Cash In.
Yahoo Finance ·
Private credit sounds fancy, but it really isn't. Essentially, private credit businesses invest in the equity and debt of non-traded businesses. It's roughly similar to what happens in the public stock and bond markets, just without the liquidity that public markets offer. That said, there are material risks for investors to consider before making a private credit investment. That's going to be increasingly important because private credit investments are likely heading to a 401(k) near you. Here's what to think about before investing in private credit, and a way to profit from the increased availability that doesn't require you to buy a private credit fund. (Hint: Blackstone ( BX +0.77% ) , Apollo Global Management ( APO +0.42% ) , and KKR ( KKR +0.70% ) all manage private equity investments.) Private credit invests in businesses that, for whatever reason, are not seeking funding in the public market. Often, the reason is that the company is too small or not profitable enough to tap the capital markets. Investing in early stage companies can offer higher long-term returns. But not every early stage company becomes a winner, and many fall by the wayside. One particularly troubling issue to consider is the lack of liquidity in private credit markets. When a business is troubled, there may be nobody willing to buy its securities. Those who have invested in it simply end up with nothing. Moreover, during recessions and periods of rising interest rates, some private credit investments can struggle to cover interest payments.
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