Private Credit’s Long-Term Structure Is Fitting for DC Adoption, per PGIM

While increased focus has been placed on private assets for defined contribution investment lineups, some experts view private credit as an asset class well-positioned for retirement-focused investors seeking long-term returns.

According to Dianna Carr-Coletta, managing director and partner in the alternatives and direct lending group, at PGIM, the global investment management arm of Prudential Financial Inc., private credit is continuing to grow and no longer falls into the “new asset” category.

“Instead of it being a ‘new asset class,’ we need to think about it more as a continuation of lending markets that investors have long participated in,” she told reporters at a recent New York event.

At a time when asset managers and plan sponsors are considering how private-market investments can best fit in retirement plans, with a “safe harbor” Department of Labor proposal still pending approval, Carr-Coletta said private credit has characteristics that align with long-term retirement investing. The most important features that come with private–credit allocations are income generation, diversification and relatively low volatility for investors willing to accept reduced liquidity.

According to another recent study by Fortress Investment Group, a global alternative asset management firm, private credit has established itself as a durable cash flow investment and one where investment strategies can provide contractual streams of income.  

Carr-Coletta said this stream of income is a significant asset to investors and typically misunderstood industry-wide.

“We as an industry need to do a better job of explaining the role of private credit in wealth portfolios,” she says. “It’s meant to be income generating. It is not meant to be traded for capital gains or losses, and that’s the difference compared to the public bond market. … We need to educate on that a little bit better.”

While Carr-Coletta does not work with DC plans, she added that when it comes to private credit as a DC asset specifically, she sees it fitting well into lineups. “In a DC plan you’re looking for the long-term, you’re looking for low volatility and you’re looking for current income,” she says.

However, sponsors and advisers still need to make certain aspects of the investment clear, such as its liquidity.

“Private credit is less liquid, depending on how you invest, whether in a close-end fund or not,” she added. “I don’t think anyone wants to be overweighted in it, and that goes for the entire alternatives portfolio, because most of the alts portfolio is less liquid. … The plan sponsor needs to figure out: ‘How much should I allocate?’”