Changing asset allocation strategies: the rise of private credit

Frances MacDonald, Director at Capstone Funds, recently sat down with Ausbiz to discuss changing asset allocation strategies over the last few years and the move to building more alternative assets and in particular private credit into portfolio allocations to achieve better risk-adjusted returns. A few key takeaways:

- There has been a move away from the traditional 60% equities 40% bonds portfolio allocation due to recent lower yields from bonds and positive correlation between equities and bonds amid high inflation and volatility

- JP Morgan have observed that the 60/40 model, and more aggressive or defensive options of this, have underperformed in recent times compared to infusing alternative assets into your portfolio

- Private credit has been the alternative asset class of the year, with McKinsey stating it was the best performing alternative asset of 2023 and KKR recommending up to 10% of portfolio allocation to private credit

- Private credit is attractive because it offers higher yield than traditional fixed income, has shown strong resilience through economic cycles, has low correlation with public markets, and strong security features underpinning capital preservation. 

Watch the interview here: https://ausbiz.co/3VTL8q1