Thomas: Retail investors need strong advisors for private credit access

Private Credit Market Overview - The private credit market is evolving and not a monolith, encompassing companies with revenue from $5 million to $1 billion [2][3] - The current private credit market is $1.7 trillion and is projected to reach $2.8 trillion by 2028, driven by a structural shift in lending away from traditional banks [4][6] - Growth is fueled by demand from smaller and mid-sized institutions, high net worth individuals, and private investors [7] Investment Strategies and Risk - Private credit strategies are evolving beyond senior-backed lending to include specialty finance and other specialized strategies [8][9] - Private credit can play a role in portfolios if investors work with competent advisors, but it is a relatively illiquid investment with less readily available information compared to public markets [12][13] - Concerns arise when retail-type strategies do not capture the illiquidity premium, emphasizing the need for prudent underwriting and good advisors [14] Fees and Returns - Retail investors, especially educated ones, prefer lower costs, similar to the trend observed in ETFs where lower expense ratios attract more flows [15][16] - Pricing for more commoditized private credit strategies may decrease over time, while strategies that capture alpha or excess return will command higher expense ratios [17] Market Segmentation - Focus is on direct lending to private companies in the $5 million to $150 million revenue range, noting different return characteristics and company behavior compared to the upper end of the private credit market [3][4] Retail Investor Participation - BlackRock is launching target funds for 401(k)s with a potential allocation of 5% to 20% to private credit [10] - It's crucial to ensure investors are compensated for the risk they take when considering private credit for retail investors and retirement accounts [11]