Picture a big tent on the sand in Huntington Beach, Calif. Inside, financial advisers in shorts sit down for 15-minute speed dates with fund managers. Nearly 6,000 people came to the four-day Future Proof Festival in September. The Journal's AnnaMaria Andriotis reports that private credit was one of the pitches. The timing was odd. The individual investors these funds court were asking for their money back.
Private credit means funds that lend to companies, often risky ones, at fairly high interest rates. Banks used to do more of this. After 2008 they pulled back, and firms like Apollo (APO), Blackstone (BX) and KKR (KKR) stepped in. For years the money came from pensions and endowments. Those big investors have now hit their limits. So the firms want households.
The money is moving the other way. The investment bank Robert A. Stanger estimates investors pulled $30 billion from retail private-credit funds in the first three quarters. New money has slowed. Blue Owl (OWL) has drawn the most worry. It sold $1.4 billion in loans early this year. Investors have asked for more than $10 billion back from two of its funds. Blue Owl says liquidity, its ability to pay out on request, has never been an issue.
The 401(k) push
Here's the part that reaches you. The industry has lobbied the administration to open 401(k)s to private assets, credit included. On Sept. 30 the SEC proposed rules that would widen access and could let managers keep a big share of a fund's profits. Melissa Joy, an adviser from Dexter, Mich., says a retail buyer putting in $25,000 or $100,000 won't get a pension fund's fee deal.
Even the advisers who like these funds keep them small. Frank Fantozzi runs a firm with $475 million in client money and gets pitched every week. For some clients he suggests about 5% in private credit. His firm stopped adding to a Blue Owl fund this spring, worried about its software loans. At a Nashville event, one manager told an investor his fund had high-double-digit returns and no loan losses. He said the window to get in was small. Derek Notman, an adviser near Orlando, keeps nearly all of his clients' $50 million in public markets. Most clients, he says, want to know “Am I going to be OK?”
Our read
This is Investments/Risk · IN04, with an Insurance/Consumer Protection · M11 warning on the sales pitch. Our stance on non-traded private-credit funds for most households is a hedged avoid. You can't always get out when you want. The fees are high, and a household pays more than a pension for the same loan. Beach tents, scarcity closes and claims of no losses are sales methods, not safety features. For our halal readers, private credit is interest-based lending, so it isn't on the Shariah-screened menu at all. None of these fund firms sit in our model books.
Your check this week is your own statements. Look for the words interval fund, non-traded or private credit in your brokerage account or your 401(k) lineup. If one is there, find the redemption rule, the part that says how and when you can sell. Many of these funds only let you out in set windows, and sometimes only part of what you ask for. Read that paragraph before you count the money as cash. If your plan sponsor adds a private-asset option, make the same check before you tick the box. The umbrella is cheap before it rains. If you'd like us to read the fine print with you, bring it to your next review.