The Case for Private Credit

Rebecca Darst
How does private credit fit into a portfolio allocation today?

Jack Snyder
When you look at private credit, the three things folks are really looking for are high current income and yield spread, as well as low volatility and low correlation.

Rebecca Darst
It's a common misperception that private credit is a post financial crisis phenomenon. Antares has been delivering private credit solutions for three decades, long before the term private credit was widely used. Over that time, Antares has generated strong investor returns and built deep relationships with private equity sponsors. So, what role does private credit play in a portfolio today? Here to help me unpack this, I'm joined by Jack Snyder, Managing Director and Head of U.S. Wealth Solutions at Antares. Jack, it's great speaking with you today.

Jack Snyder
Excited to be here.

Rebecca Darst
Let's dive in. So, for an advisor and their client who may be tuning in and exploring greater exposure to alternative assets, what in your view is the most compelling value proposition of private credit today?

Jack Snyder
Well, alternative investments in private credit were historically reserved for institutional investors and access through drawdown funds and custom SMAs. With the evolution of products in evergreen solutions like BDCs and annual funds, retail investors now can invest alongside of institutional investors. When you look at private credit, the three things folks are really looking for are high current income and yield spread, as well as low volatility and low correlation. Very compelling considering the value proposition that's out there. Investors are starting to see that 100% of their allocation does not need to be 100% liquid. And I think that's important that I didn't say 100% of their fixed income allocation, because ultimately investors are starting to look at not only their fixed income allocation, but also their equity allocation. Private credit has returned, you know, high single to low double digits over the last multiple years, and we really think that when you're looking at the 60/40 portfolio, you can take it from either side of the ledger.

Rebecca Darst
So, within the private credit universe, why focus on the core middle market?

Jack Snyder
The core versus the upper middle market is a debate that's out there. And ultimately, we think it's a complement story. Realistically, Antares defines the core middle market as companies with an EBITDA between 25 and 125 million. That's our credit box. That's where we focus. Moch of that, those dollars have gone into the upper middle market, so it's become very competitive. 70% of that origination comes from our existing portfolio.

Rebecca Darst
When a manager starts to stray from their stated strategy, what is the price they typically pay in terms of performance?

Jack Snyder
What's happening out in the market today is that there's a massive amount of inflows coming into these BDCs, in these alternative credit vehicles, and folks are having trouble keeping up from an origination standpoint. At Antares, we look to run style pure. We look to run less than 15% in broadly syndicated loans inside our portfolios. You've seen levels in some of our competitor portfolios at 25, 35, even 40%. Plus, if you're investing in a broadly syndicated loan, otherwise known as a bank loan or a floating rate loan, you've been used to seeing volatility. And that's not what you signed up for when you bought a private credit vehicle, you were looking to invest in private credit.

Rebecca Darst
What's the biggest misconception around private credit today, if anything?

Jack Snyder
We feel the biggest misconception is that private credit is new and it's risky. At Antares, for over three decades, we've been doing one thing and one thing only. We invest in first lien, senior secured floating rate debt with private equity sponsor backed companies. Many of these companies, we followed from one to two to three private equity sponsors. These are very well-established companies. And when you look at the characteristics of these loans with 30 to 40% LTV, we think that's extremely attractive in today's market.

Rebecca Darst
If you could leave advisors and their clients with one key thought about how or why an allocation to core middle market private credit fits into their long-term strategy, what would it be?

Jack Snyder
When evaluating private credit managers, size, scale and experience truly matter. In private credit, investors will gain a predictable income coupled with disciplined risk management, which leads to a great long-term allocation for investors.