Private credit has become an increasingly important part of alternative investment portfolios for institutional investors and family offices. However, not all private credit managers have the expertise and track record required to generate strong risk-adjusted returns. When evaluating top private credit investment companies, investors should look for managers with at least 10 years of experience across market cycles, global platforms, and expertise in specialized strategies beyond just direct lending. The top private credit managers have structured their investment processes to source unique deals, conduct rigorous due diligence, and manage portfolios actively to maximize value. They have also built out operations and infrastructure to support expansion into new strategies and geographies. By partnering with the right private credit investment companies, investors can gain exposure to an attractive segment of alternative investments and enhance their portfolios’ resilience.
Long track records spanning different credit cycles
The top-tier private credit investment companies share the trait of having navigated several credit cycles successfully over the past 10-20 years. They have invested through periods of tight credit in the early 2000s, the global financial crisis, and the COVID downturn, while generating positive returns for investors. Their experience investing in recessionary periods as well as frothy markets gives them an edge in portfolio construction and risk management. Additionally, veteran managers have cultivated strong relationships with banks and sponsors over decades, providing access to deal flow. When evaluating private credit managers, look for those with proven experience across different market environments.
Global platforms tapping deals worldwide
Beyond investing just in their headquarters region, the leading private credit investment companies operate integrated global platforms to source and manage deals worldwide. For example, U.S. based managers like Ares Management and Blackstone have teams on the ground in Europe and Asia Pacific structured to find unique lending opportunities. At the same time, they leverage centralized underwriting and portfolio management to ensure consistency. This global footprint allows them to flexibly deploy capital based on relative value and find deals overlooked by local lenders. The global leaders in private credit also understand differences in credit markets across regions when structuring loans and building portfolios.
Expertise beyond vanilla direct lending
Rather than just providing vanilla cash flow loans to sponsor-backed companies, the top private credit investment companies offer specialized lending strategies up and down the capital structure. For instance, Apollo Global Management has focused on generating equity-like returns through opportunistic credit, stressed credit, structured credit, andEuropean non-performing loans. Oaktree Capital offers distressed debt, convertibles, and separate accounts in structured credit. And TPG Sixth Street Partners provides rescue financing, strategic lending, royalties, litigation finance, receivables financing, and more. The managers with the strongest performance in private credit go beyond just replicating what banks provide to find less competitive opportunities.
Disciplined portfolio construction and active management
In addition to their sourcing capabilities, the leading private credit investment companies possess sophisticated processes for portfolio construction and risk management. Managers like TPG Sixth Street Partners, Blackstone, and Apollo conduct rigorous due diligence on borrowers’ business models and cash flows. They structure loans with covenant packages and security interests to preserve capital. These managers also take an active approach to managing portfolios, directly engaging with borrowers, to maximize recoveries. Furthermore, they understand the macroeconomic environment and position portfolios defensively if needed, for example, by tilting toward floating rate exposure before rate hikes. This expertise in portfolio management and credit analysis helps top-tier firms in private credit avoid blow-ups.
By partnering with private credit investment companies that have demonstrated expertise across market cycles, global platforms, and specialized lending strategies, investors can gain access to an attractive segment of alternative credit. The top private credit managers have the experience and disciplined processes to provide strong risk-adjusted returns.