Private Credit, An All-Weather Asset Class

April 2024

Private credit can provide investors with diversification benefits due to its low correlation with traditional asset classes. Unlike public markets, it has historically delivered consistent income regardless of market conditions, offering a potentially more stable investment opportunity.

Through the sunshine of the recent bull market and the storm clouds of the Global Financial Crisis, private credit has historically shown itself to be an “all-weather” asset class.

By potentially generating returns closer to those of private equity, while offering a better risk profile than traditional fixed income, private credit is increasingly becoming a preferred choice for investors seeking durable, reliable returns through various economic cycles.

Low Correlation to Public Market Volatility

 Private credit’s historical ability to weather market storms is driven by its diversification and long-term investment focus. Unlike public markets, which can be particularly prone to volatility, private credit investments typically have a lower correlation with traditional asset classes such as stocks and bonds. This lower correlation helps to reduce portfolio volatility and provides a cushion against market downturns.

In addition, private credit investments often involve lending to private companies that are less sensitive to macroeconomic factors. These loan investments are typically structured with features similar to fixed income, providing a steady stream of income irrespective of market conditions. This stability makes private credit an attractive option for investors seeking capital preservation and consistent long-term returns.

Unlike investing in stocks, real estate, or waiting for exits in private equity, private credit investors can benefit from the contractual right to receive interest payments. This contractual right provides a level of predictability absent in other asset classes.

Flexibility and Customization

 Private credit encompasses a wide range of strategies that span the capital structure and borrower type, ranging from real estate and infrastructure to corporate direct lending and specialty finance. This diversity can contribute to investors and their advisors constructing a portfolio that is resilient to sector-specific risks and economic cycles.

At PennantPark, we focus on lending to U.S. core middle market companies with earnings of $10 to $50 million in non-cyclical industries that are less susceptible to macroeconomic factors. These companies are profitable, owned by established private equity sponsors, have proven management teams, and leading market positions with significant competitive advantages. These companies tend to provide products and services that are integral to their customers’ businesses, making them difficult to remove or replace in distressed market conditions.

Built-in Hedge Against Inflation 

In high inflationary environments like what we’ve recently experienced, private credit portfolios of floating-rate loans provide a natural hedge against inflation. As base interest rates increased to counteract inflation, so, too, did private credit loan interest payments. In contrast, fixed rate bonds can be highly sensitive to changes in interest rates, resulting in price volatility. In the current market environment of elevated high interest rates, first lien loans are generating an attractive 12% yield[1].

Enhanced Structural Protections

To help weather more unsettled market conditions, most core middle market private credit investments have built-in protections from losses in the form of subordination, which means that the equity owners of a company will experience losses long before private credit investors do. Private credit loans are typically collateralized by all of the assets and enterprise value of a company. At PennantPark, most of our first lien loans have loan-to-value ratios of 40% to 50%, meaning 50% to 60% of a company’s value would need to erode before we experience any losses on our investment. In addition, almost all of our loans have structural protections, such as financial covenants, that allow us to step in to intervene at the first signs of financial underperformance at a portfolio company. If a covenant is breached, we can reprice our loan, require the equity owner of the company to inject additional capital, or even step in to manage the company if we believe it is in the best interest of our investors.

The Importance of Active Management

 Importantly, private credit managers typically have the flexibility to adapt their strategies in response to changing market conditions. Whether tightening credit standards during periods of economic uncertainty, such as during the Global Financial Crisis, or capitalizing on opportunistic investments in times of market dislocation, active management plays a crucial role in navigating the complexities of the private credit landscape.

In an investment landscape fraught with volatility and uncertainty, we believe private credit stands out as an all-weather strategy that offers stability, income generation, flexibility, and risk mitigation. By potentially providing potential diversification benefits, stable income streams, and customization options, private credit has become increasingly attractive to investors seeking to navigate turbulent market cycles.

We welcome a conversation; please contact or the professionals listed below.


PennantPark is an independent middle market credit platform founded in 2007 by private credit industry veteran Art Penn (Co-Founder and former Managing Partner at Apollo Credit). As of 2024, PennantPark has invested over $20 billion in over 700 private credit transactions since its inception. Our clients include some of the world’s largest and most sophisticated institutional investors. We are in the process of expanding our offerings to focus on the private wealth market. The Firm is headquartered in Miami and has additional offices in New York, Chicago, Houston, Los Angeles, and Amsterdam. PennantPark primarily invests in the core middle market, defined as companies with earnings of $10 million to $50 million. Our industries of focus include business services, government services, healthcare, consumer, and software/technology. PennantPark offers investment strategies through various public and private fund structures, including BDCs, LP drawdown vehicles, CLOs, SMAs, and joint ventures.

PennantPark Contacts:

Managing Director; Head of Private Wealth Distribution
Senior Associate; Investor Relations & Fundraising

Important Information:

©2024 PennantPark Investment Advisers, LLC (‘PennantPark’) is an investment adviser registered with the US Securities and Exchange Commission (‘SEC’). Registration is not an endorsement by the SEC nor an indication of any specific level of skill. Products or services referenced in this document may not be licensed in all jurisdictions, and unless otherwise indicated, no regulator or government authority has reviewed this document, or the merits of the products and services referenced herein. This document and the information contained herein has been made available in accordance with the restrictions and/or limitations implemented by applicable laws and regulations.

In considering the past performance information contained herein, recipients should bear in mind that past performance is not a guarantee, projection or prediction and it is not a guarantee or indication of future results. Invested capital is at risk. There can be no assurance that any product or service referenced herein will achieve comparable results, or that they will be able to implement their investment strategies or achieve their investment objectives.

An investment with PennantPark in any advised fund is suitable only for sophisticated investors and requires the financial ability and willingness to accept the risks and lack of liquidity that are characteristic of an investment in such funds. Investors must be prepared to bear such risks for an extended period. There can be no assurance that any investment will be profitable, not lose money, or achieve the other intended purposes for which they are made. Investing with PennantPark will expose the investor to various risks including, but not limed to, the following: 1) Lack of Liquidity Risks including lack of permitted withdrawals, lack of secondary market, and lack of transferability 2) Interest Rate Volatility Risks 3) Use of Leverage Risks 4) Securitization Risks 5) Credit Market Disruption Risks 6) Investing within a Highly Competitive Market Risks 7) Default by Borrowers Risks 8) Recovery on Bad Debt Risks including cost of recovery 9) International Market Exposure Risks 10) Inflation and Deflation Exposure Risks. This is not intended to be a complete description of the risks of investing with PennantPark. Investors should rely on their own examination of the potential risks and rewards. The firm brochure (Form ADV 2A) is available online at or upon request and discusses these and other important risk factors and considerations that should be carefully evaluated before making an investment.

This document is directed at and intended for sophisticated investors. The information contained here does not constitute, and is not intended to constitute, an offer of securities and accordingly should not be construed as such. Information in this document does not constitute legal, tax, or investment advice. Before acting on any information in this document, current and prospective investors should inform themselves of and observe all applicable laws, rules and regulations of any relevant jurisdictions or obtain independent tax, legal, or investment advice.

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Index Definitions:

S&P 500 Index is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

The Cliffwater Direct Lending Index (CDLI) seeks to measure the unlevered, gross of fee performance of US middle market corporate loans, as represented by the asset-weighted performance of the underlying assets of Business Development Companies (BDCs), including both exchange-traded and unlisted BDCs, subject to certain eligibility requirements.

Morningstar LSTA US Leveraged Loan Index is a market value-weighted index designed to measure the performance of the US leveraged loan market based upon market weightings, spreads and interest payments.

Bloomberg US Corporate High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

Bloomberg US Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.