Long-term investment recommendations: How to integrate private credit into your investment portfolio

Markets fluctuate constantly, and traditional banks have grown increasingly strict with lending approval. In search of steady returns, more investors are adding private credit to their long-term investment portfolio. Beyond offering attractive yields, private credit works alongside stocks and bonds to buffer your portfolio against volatile cycles. Here is a clear guide from StashAway on how private credit works, its key benefits and risks, and practical steps to build a balanced long-term strategy.

What is private credit?

What is private credit? It refers to debt financing provided directly by non-bank financial institutions rather than public credit markets. These debt instruments often feature floating interest rates and customized terms tailored directly to medium-sized enterprises, infrastructure projects, real estate, and corporate initiatives.

Private credit generally falls into three main categories:

• Senior Secured Debt: Backed by specific company assets as collateral, giving lenders priority in the event of default.
• Subordinated Debt and Mezzanine Financing: Unsecured or partially secured loans carrying higher risk and higher potential returns, often used to fund corporate mergers or aggressive expansion.
• Structured and Fixed Income Financing: Financing that covers equipment leasing, real estate development, and specialized asset allocation.

Private credit market trends and outlook

Since the 2008 global financial crisis, stricter regulatory requirements have led traditional commercial banks to curb lending to middle-market businesses. As a result, middle-market enterprises and growth industries turned to alternative financing channels, driving rapid growth across private credit markets worldwide. Global private credit assets under management reached approximately $1.6 trillion in 2023 and are projected to surpass $3.5 trillion by 2028 1. Across Asia in particular, expanding small and medium-sized businesses are actively turning to private credit funds to fuel growth.

What are the benefits of private credit?

During periods of market uncertainty or bank credit tightening, private credit offers distinct advantages for long-term allocation:

Stable returns and portfolio diversification

Over the past decade, private credit in the US generated an average annualized return of approximately 8.7%, outperforming high-yield bonds at 6.5% and leveraged loans at 4.4%2.

Managed by institutional asset managers, a private credit fund structure conducts rigorous underlying credit assessments to manage default risk. By diversifying across industries, these loans remain insulated from single-sector downturns. Incorporating private credit into a long-term investment portfolio enhances income stability while reducing systemic risk from public stock and bond volatility.

Flexible terms and downside resilience

Unlike rigid traditional bank loans, private credit agreements can be tailored to match borrower needs and lender terms. Agreements routinely customize repayment schedules, rate structures, and collateral arrangements. This flexibility allows middle-market companies to navigate revenue fluctuations smoothly. During broader economic contractions, private credit providers maintain active liquidity, offering durable earnings profiles that help stabilize overall portfolio value.

A valuable component for long-term portfolios

Private credit enhances overall portfolio resilience. During periods of elevated interest rates, inflation, or broader market volatility, private credit yields tend to hold up better than traditional public fixed income, generating steady cash flow with less mark-to-market fluctuation. Its broad variety of sub-strategies allows investors to capture income gaps when public markets move sideways, preserving capital while generating yield.

Understanding the risks of private credit

Like any asset class, private credit carries specific risk considerations:

Credit risk and default rates

Borrowers in private credit transactions are often unrated middle-market companies with significant capital needs, leading to higher credit risk compared to investment-grade public bonds. According to JPMorgan Private Bank data from Q1 2025, private credit default rates hovered around 2.4%. While historically moderate, this remains higher than high-yield public bonds at 1.5%2. Default rates follow economic cycles, meaning middle-market borrowers could face heightened debt service pressure during broader macroeconomic slowdowns.

Liquidity risk

Unlike public bonds traded on open exchanges, most private credit investments come with lock-up periods ranging from 3 to 7 years. Capital remains illiquid during this timeframe, making early redemption difficult due to limited secondary market depth. While certain semi-liquid private credit fund structures exist, they may offer slightly lower baseline yields. Investors must carefully evaluate their cash flow needs before committing capital.

Valuation frequency and information transparency

Because private credit assets are privately negotiated and not publicly traded, underlying holdings are typically valued on a quarterly or semi-annual basis. Regulatory disclosure requirements are also lower than those for public markets. Partnering with a professional asset manager that maintains clear valuation methodologies and regularly discloses portfolio holdings is essential.

How to integrate private credit into a long-term investment portfolio

Private credit can serve as a core supplement to traditional fixed income, strengthening global asset allocation and downside protection for a long-term investment portfolio.

Define clear asset allocation goals

Understanding your long-term goals is the foundation of portfolio strategy. Every investor should evaluate whether their priority is consistent ongoing cash flow or capital appreciation. If your plan includes long-term goals like retirement or education funding, portfolio construction should prioritize drawdown resistance rather than relying on a single asset class.

The key appeal of private credit lies in its low correlation with public equities and traditional bonds. When equities decline or bond markets experience volatility, private credit yields remain relatively insulated, serving as a defensive engine that stabilizes total returns.

Investors should adjust asset weights based on their personal risk tolerance. Those needing near-term cash can hold higher liquid reserves, while those seeking growth can allocate more to higher-yielding private credit or alternative assets to match their broader financial roadmap.

Choose the right investment channels

Investors in Hong Kong have several avenues to access private credit, depending on their profile and liquidity preferences:

• Limited Partnerships (LPs) 

LP structures typically require higher minimum investment amounts and long lock-up periods of 3 to 7 years, making them suitable for qualified professional investors seeking higher yield potential. Fund managers deploy capital across various projects, corporate loans, and assets to maximize diversification. LP investors gain direct exposure to institutional underwriting standards and deeper strategic deal execution.

• Business Development Companies (BDCs) and Listed Private Credit Funds

BDCs offer a more accessible entry point for general investors. BDCs trade on public stock exchanges, allowing investors to purchase shares through regular brokerage accounts, collect regular dividends, and maintain daily liquidity. Listed private credit fund structures provide liquidity while spreading risk across a portfolio of middle-market corporate debt. Regulatory oversight requires regular financial disclosures, offering high operational transparency.

• Family Offices and Individual Mandates Family office 

Family Offices and Individual Mandates Family office structures and customized managed accounts suit high-net-worth investors looking to combine multiple private credit instruments. These mandates offer tailored liquidity terms and flexible allocation adjustments aligned with long-term wealth preservation goals.

Dynamically adjust allocation percentages

As institutional investors place greater weight on portfolio resilience, private credit allocations have steadily increased. Recent global research indicates that 82% of Limited Partners (LPs) plan to increase their private credit allocations over the next 3 years, with over 70% highlighting diversification as a key driver alongside yield 3.

In practice, allocating 10% to 20% of a long-term investment portfolio to private credit can effectively mitigate public market systemic risk. With total private credit AUM expanding rapidly, many pension funds, insurance firms, and family offices have raised their allocations toward 25%, while keeping liquid cash buffers intact for unexpected market events.

Dynamically rebalancing private credit allocations helps maintain cash flow during public market downturns, capturing steady yield without missing out on long-term market recoveries.

Select experienced fund managers carefully

Selecting asset managers with proven track records, transparent disclosures, and rigorous valuation frameworks is essential for long-term capital preservation.

Consider the following criteria when evaluating a private credit fund manager:

1.  Team track record and institutional background 

• Prioritize managers with established track records across multiple economic cycles.
• Examine past default rates, underlying deal quality, and performance during market stress.

2. Transparency and disclosure frequency 

• Professional managers issue regular portfolio updates, quarterly reports, and audited annual statements, maintaining open reporting on cash flows and credit events.

3.  Independent valuation and risk control 

• Valuation frameworks should involve internal risk committees alongside independent third-party pricing checks, with clearly articulated valuation methodologies.

4. Regulatory compliance and licensing 

• Ensure the fund manager is licensed by the Securities and Futures Commission (SFC) in Hong Kong, with a clear compliance track record and institutional governance.

5. Industry reputation and market recognition 

• Review independent research reports, institutional ratings, and industry recognitions to select established and reputable managers.

Review and rebalance regularly

Long-term investors should review their private credit allocations annually or quarterly. Rebalancing ensures that your asset mix stays aligned with evolving market conditions and personal financial milestones.

Long-term investment recommendations: StashAway Private Markets

When investing in private credit, Hong Kong investors often face challenges such as credit evaluation complexity, default rate variance, limited transparency, and structural illiquidity. StashAway Private Markets helps solve these challenges, offering long-term investment recommendations that make private credit an accessible, resilient core component of your portfolio:

1. Rigorous manager selection and proactive risk management StashAway selects top-tier fund managers with proven risk frameworks and transparent reporting. We conduct multi-layer due diligence on underlying loan portfolios and share continuous updates to bridge the information gap.
2. Diversified asset allocation tailored to your goals Our platform facilitates diversification across direct lending, asset-backed lending, and opportunistic credit. Spreading capital across multiple loan strategies buffers your portfolio against single-borrower default risk.
3. Transparent investment tracking and quarterly updates Investors can monitor portfolio metrics, underlying exposures, and detailed quarterly reports through the StashAway platform, ensuring full visibility into performance and underlying asset health.
4. Enhanced liquidity options and structural flexibility StashAway offers access to listed and semi-liquid private credit structures, giving investors opportunities for periodic redemptions and secondary liquidity when cash flow needs arise.
5. Professional monitoring and dedicated support Our investment committee and research team continuously monitor macro market trends and portfolio risks, empowering both individual and institutional investors with expert guidance

Source：

1. StashAway，「私募信貸：2025 年急速崛起的私募資產類別」https://www.stashaway.hk/zh-HK/r/private-credit-tailwinds-2025

2. 摩根大通私人銀行亞洲，「私募信貸：前景可期還是問題重重？」https://privatebank.jpmorgan.com/apac/zh/insights/markets-and-investing/tmt/private-credit-promising-or-problematic

3. Yahoo股市，「CSC研究發現，未來三年全球82%的有限合夥人將增加對私募信貸的配置」https://tw.stock.yahoo.com/news/csc%E7%A0%94%E7%A9%B6%E7%99%BC%E7%8F%BE-%E6%9C%AA%E4%BE%86%E4%B8%89%E5%B9%B4%E5%85%A8%E7%90%8382-%E7%9A%84%E6%9C%89%E9%99%90%E5%90%88%E5%A4%A5%E4%BA%BA%E5%B0%87%E5%A2%9E%E5%8A%A0%E5%B0%8D%E7%A7%81%E5%8B%9F%E4%BF%A1%E8%B2%B8%E7%9A%84%E9%85%8D%E7%BD%AE-214900254.html