Private credit offers 'fake diversification' from equities, market experts warn
The widely touted claim that private credit is 'uncorrelated' from public markets is being questioned.
Investors seeking to diversify their portfolios away from equities by adding exposure to private credit may be misjudging the nature of the booming but controversial asset class.
That's the view of two prominent market experts who told Capital Brief that contrary to a belief that private credit does not move in sync with public markets, the correlation between private credit and equity returns was fairly strong.
WAM portfolio strategist Damien Boey said investors were piling into private credit due to its relatively high yields and a view that it offers protection against rising inflation.
However, while equity, bond, credit, and commodity prices moved everyday and valuations for private credit were more infrequent, Boey said this made it look like private credit was “doing nothing for long periods of time” and had been given its “uncorrelated” label.
