Why Does Everyone Want to Invest in Private Credit? | The Informed Investor 36 Video
The Informed InvestorShow Notes
Episode 36: Why all the hubbub about private credit? This unusual investment vehicle, which accounts for about 2% of the global fixed income market, seems to be all over the financial headlines. Some reports say investors are cashing out in droves. Others claim lending to troubled software firms catalyzed a meltdown that's chilling the entire private credit market. Then there are the optimists who argue all the turmoil will lead to enticing opportunities. Investors might have heard that private credit offers untapped potential for higher returns, so the latest developments may be perplexing. In simple terms, private credit consists of loans by nonbank lenders to small and midsize firms that may have trouble obtaining traditional bank loans. The money for the loans comes from investors who are typically seeking yields higher than what's available in the traditional fixed income market. Everyday investors can access this private market through publicly traded business development companies (BDCs), which make these loans and are then required to distribute at least 90% of their taxable income to shareholders. While outsize returns on offer by BDCs make them attractive, the risks are significant and shouldn't be overlooked. BDCs outperformed the conventional bond market in the past five and 10 years. Yet in the past 12 months through February, BDCs tumbled nearly 20% even while the bond market posted positive returns. (S&P data © 2026 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved; Bloomberg data from Bloomberg.) Costs are another concern. The combined management and incentive fees for public BDCs may exceed 5% annually. (Incentive fees are performance-based charges payable if managers exceed a specific return target.) Compare those fees to the average 0.54% net expense ratio for the US Intermediate Core Bond Fund category, based on Morningstar data. In Episode 36 of The Informed Investor, Dimensional's Mark Gochnour, Head of Global Client Services, Kevin Green, PhD, Head of Investment Solutions Analytics, and Jake DeKinder, Head of Client Communications, assess the numerous tradeoffs facing investors in private credit and highlight those that should garner the most attention. LINKS FROM TODAY'S EPISODE: The Informed Investor: Feedback Survey https://www.dimensional.com/us-en/informed-investor-survey Dimensional Perspectives: "Hiding in Plain Sight: Private Asset Exposure Through Public Equities" https://www.dimensional.com/us-en/insights/hiding-in-plain-sight-private-asset-exposure-through-public-equities Dimensional Perspectives: "A Deep Dive into Private Fund Performance" https://www.dimensional.com/us-en/insights/a-deep-dive-into-private-fund-performance The Informed Investor, Episode 11: "Do Private Markets Deliver an Edge?" https://www.youtube.com/watch?v=TUGb1LLeB1A&list=PLCyJr6FFig-h1mA7rVP7Mbk0irFw2wA90&index=26&pp=iAQB "The Informed Investor" on YouTube https://www.youtube.com/playlist?list=PLCyJr6FFig-h1mA7rVP7Mbk0irFw2wA90 Mark Gochnour on LinkedIn https://www.linkedin.com/in/mark-gochnour-9a23598a/ Kevin Green on LinkedIn https://www.linkedin.com/in/kevin-green-505b15355/ Jake DeKinder on LinkedIn https://www.linkedin.com/in/jake-d-4105b98/ Learn more at https://www.dimensional.com/
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