Private Credit Isn’t Broken – But It Isn’t Plug and Play Either

Key Takeaways

Is allowing individual investors access to private alternatives an opportunity to improve their investment outcomes, or is this a hand grenade waiting to blow up their portfolios?

In my 2026 outlook, I pointed to the democratization of private alternative investments as a positive trend in wealth management, particularly as venture capital, private equity, private credit and real assets move from institutional use into high-net-worth investors. At the time, I noted that this trend “offers a broader range of higher return options and opportunities to individual investors ... with, of course, attendant risks that may not be suitable for all investors.”

Since then, recent developments have made clearer the importance of careful guidance when evaluating private credit – and alternative assets more broadly. A mix of credit events, liquidity pressures, valuation questions and regulatory scrutiny has put the space under a much brighter spotlight, particularly within semi‑liquid private credit strategies. That scrutiny has been driven by several developments:

• Highly visible credit stress. Defaults on private credit‑funded loans – including at car parts maker First Brands and car dealer Tricolor – have raised concerns about additional undisclosed “cockroaches” lurking in portfolios.
• Investor redemption pressure. Semi‑liquid private credit funds have seen spikes in redemption requests, reaching double‑digit percentages of fund assets at such firms as Apollo, Ares, Blackstone, Blue Owl, Cliffwater and Stoneridge.
• Redemption limits and gates. In response, several sponsors have limited or “gated” withdrawals under contractual terms, leaving an estimated $4.6 to $5 billion in unfulfilled redemption requests across the category.
• Public market repricing. Shares of publicly traded alternative asset managers have declined 25% to more than 45% year‑to‑date.
• Valuation transparency concerns. JPMorgan CEO Jamie Dimon wrote in his annual letter that “by and large, private credit does not have great transparency or rigorous ‘marks’ of their loans.” Former Goldman Sachs CEO Lloyd Blankfein added on Bloomberg TV: “If you haven’t had a crisis, it means you haven’t had a reckoning … you haven’t had to sell in distress things on your balance sheet that might not be marked correctly.”
• Rising regulatory attention. Regulators have also expressed concern about the potential systemic risk posed by the rapid growth of private assets.

And at a time when the optics could hardly be worse, the U.S. Department of Labor released a long-awaited Trump administration proposal to make it easier for certain alternative assets and digital assets to be included in U.S. retirement plans. Under the proposed rule, fiduciaries benefit from a regulatory “safe harbor” if they follow a documented, prudent evaluation process when selecting investment options. Predictably, this proposal has drawn a range of reactions, from “Trump Wants To Liberate 401(k)s” in the Wall Street Journal to “Did 401(k) ‘Innovation’ Just Get Set Up to Fail?” in John Authers’ Bloomberg column.

So which is it? Is allowing individual investors access to private alternatives an opportunity to improve their investment outcomes, or is this a hand grenade waiting to blow up their portfolios?

I reached out to Paul Desmarais III to get his take. Desmarais is the co-founder, chairman and CEO of Sagard, a global, multi-strategy alternative asset management firm with more than $45 billion in assets under management.

“The gap between the noise and the reality right now is unbelievable," he told me. "Credit crises happen when there are recessions – but right now there is no recession. There has been barely an increase in loans in arrears or payment in-kind adjustments. There will always be idiosyncratic situations with individual borrowers. But for there to be a real-world problem in private credit, there needs to be a major economic slowdown.

“What we’re seeing is the defining reason why financial advice is so important. What can be a dangerous weapon for the uninitiated, to the well-educated is a powerful tool. Alternative investments are an advised asset class.”

That distinction matters, particularly as access to these investments expands faster than investor understanding. Desmarais continues:

“When you build a portfolio, you are looking for diversification. 80% of companies with greater than $20 million in revenues are private. If you’re not exposed to private markets, then you’re probably not diversified, particularly when public markets are so concentrated. In a period where it’s hard to see the S&P 500 generating high-single-digit returns over the next 10 years, let alone double-digit returns, it should still be possible to earn 200 to 400 basis points (2%–4%) over public market performance with private assets … as long as you understand and can withstand liquidity risk.”

Nic Reisenbichler, Manager of Alternative Investment Products at Baird, advises that education and prudence are more important right now than ever. “These ‘semi-liquid’ products are an illiquid asset class. They should not be traded like traditional public assets, even though we’re seeing some of that in the market. … That fund sponsors are meeting their liquidity obligations is an important distinction. These are limited liquidity funds, meaning periodic liquidity is limited to 5% – which is why they should be a smaller portion of anyone’s portfolio.”

Reisenbichler predicts “we will continue to see outflows in the private credit space for the next couple of quarters. But things have calmed down. It’s no longer ‘the world is ending’ – as net asset values remain stable, people are still searching for yield and will still be getting 8%.”

I suspect that over the longer term, once we are past this private credit speed bump, the democratization of alternatives should continue apace. “We’re probably in the second inning when it comes to the growth of alternative assets in individual investor portfolios,” says Desmarais. “High-net-worth individuals on average hold 3%–4% of their portfolios in alternatives, and institutional investors can be as much as 50%. So we could easily see individual exposure go from 3% to 10% in coming years.”

Baird has a strategic partnership and minority equity stake in Sagard.

The information reflected on this page represents Baird experts’ opinions as of today and is subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action. The views and opinions expressed here are those of the speaker and do not necessarily reflect the views or positions of the firm.

Private investments involve substantial risk, including the potential for loss of capital. These investments are typically illiquid, long‑term, may have subjective valuations, and are generally not subjected to as much regulatory scrutiny as publicly traded investments. Past performance is not a guarantee of results and private investments may not be suitable for every investor. Before undertaking any investment strategy, you should have a conversation with your advisor about your risk tolerance and portfolio goals.