Private Credit’s role in investors’ portfolios

Private Debt’s role in asset allocation

Our latest paper on private debt examines the strategic role it can play within institutional portfolios, with a particular focus on its contribution to portfolio defensiveness, diversification and robustness. Building on our earlier research into private market asset allocations, we explore how private debt – especially in the form of IFM’s Private Debt Portfolio (PDP) – can enhance risk-adjusted returns across varying investor risk appetites.

Our analysis is motivated by the growing institutional interest in private debt, driven by its potential to deliver stable income, downside protection, and diversification benefits in an increasingly uncertain macroeconomic environment. Using a utility-maximising framework, we construct optimal portfolios for three representative investor types – Defensive, Balanced, and Growth – and assess the impact of introducing private market exposures, including private debt, infrastructure, real estate, and equity.

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Our analysis reinforces the case for a more prominent strategic allocation to private credit, particularly for investors seeking to enhance portfolio resilience amid evolving market dynamics.

Key takeaways for Private Credit white paper

A foundation for portfolios

Potential outperformance

Increased interest in private debt

Experts in Private Credit for 25+ years, aiming to deliver premium credit-based return with lower volatility than traditional Fixed Income and Credit strategies.

Private Credit opportunities in APAC

Hiran Wanigasekera, Co-Head of Diversified Credit, and Alex Joiner, Chief Economist, unpack the macro landscape and discuss what makes private debt a compelling allocation in today’s uncertain environment.

Our Private Credit learnings

Our learnings from 25 years of private credit markets

Hiran Wanigasekera and Lillian Nunez, Co-Heads of Australian Diversified Credit

For more than 25 years, we’ve been investing across private credit markets in Australia, seeking to extract return premiums that reflect the complexity of analysing and managing credit risk and lower liquidity. Here are six key lessons we’ve distilled that, we believe, give us an edge when it comes to accessing opportunities in credit markets.

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Learning 1

Be flexible

Lillian Nunez, Co-Head of Australian Diversified Credit

Our experience in private credit has taught us that a tailored approach, taking account of individual borrower’s needs, can be more successful – and more profitable. For our investors too, flexibility is key. Watch this video to find out why.

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Learning 2

Good borrowers are fundamental

Hiran Wanigasekera, Co-Head of Australian Diversified Credit

One of our fundamental rules as a provider of credit is that we endeavour to lend to “good borrowers”. But, what defines a good borrower? There are four critical traits. Watch to learn more.

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Learning 3

Look to the ‘left field’

Lillian Nunez, Co-Head of Australian Diversified Credit

We like to take on different opportunities because the complexity they bring can add a premium benefit to the return. But taking on a difficult transaction needs to deliver for our investors. Watch to learn more.

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Learning 4

Be prepared

Hiran Wanigasekera, Co-Head of Australian Diversified Credit

When lending to any organization, there is always the risk it won’t be able to execute on its business plan. The most critical task for a credit investor is to avoid capital losses. Debt covenants and review mechanisms are critical to structuring deals, especially those that present as more challenging and complex. Watch to learn how we navigate this.

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Learning 5

The market is not always right

Lillian Nunez, Co-Head of Australian Diversified Credit

We believe it’s important that we are willing to make contrarian or opportunistic calls. So the approach we take to private credit markets is very different to the prevailing mindset you might find in public and traded markets. Watch this video to learn more.

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Learning 6

Valuing people

Hiran Wanigasekera, Co-Head of Australian Diversified Credit

One of the common threads through all the lessons we’ve learned over more than 25 years as specialist private credit investor is the importance of people. Watch the final episode of our learning series as we explain valuing people – our own, our clients and the people at the businesses to whom we lend – is our most important learning.

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