What makes for successful portfolio construction in private credit? That was one of the questions panelists addressed at the Private Credit Investor Summit last week.

The issue carries more urgency amid current public market turmoil. Equities tumbled this week after a worse-than-expected May CPI report. Besides the number itself (8.6%), highest in four decades, the breadth of inflation has made it clear lofty prices are here to stay for a while.

Leveraged loans will always be thrown into some kind of non-investment grade risk bucket. Middle market loans, being less leveraged and covenanted, are a more conservative play on the theme, but recessions will always test borrowers no matter how creditworthy.

How do private credit managers think about what goes into their portfolios? We’ve observed not every manager puts credit quality in the forefront. Not to say they look for bad deals. But if raising money and putting it to work quickly is the priority, then sourcing takes precedence. In effect, risk management means opening a wider investment funnel.