Why Private Credit Belongs in Every Fixed Income Portfolio Over $1M

Historically, portfolios of serious investors—those with $1 M + in liquid assets – relied heavily on a traditional fixed income core: investment-grade bonds, Treasuries, and maybe high-yield credit. These assets matched the “income + capital preservation” mandate that affluent individuals needed.

But the world has changed: yields on public bonds are modest, duration risk is elevated, and the search for meaningful real returns is harder than ever. For investors who can’t accept sub-5% yields or significant exposure to interest-rate shocks, the question is simple: What else belongs in the fixed income sleeve?

The answer increasingly is private credit—and for accredited investors, it’s no longer a fringe allocation but a smart, core choice.

What Private Credit Brings to the Table

Higher Income Potential

Research from institutions like Carlyle shows that “investment-grade private credit” can now deliver 7–9% yields in an environment where many public bond strategies yield far less. For an investor allocating surplus fixed income beyond the basic bonds, that’s an enormous difference.

Diversification of Risk

According to a study by Russell Investments, many private credit strategies display far lower volatility than public credit or equities—annualized as low as ~3.7% over long periods. For investors whose portfolios are already crowded with market-sensitive positions, private credit offers true diversification.

Structural Protection

Aberdeen’s research describes private debt as offering stronger protections: bespoke covenants, collateral-backed loans, and lower correlation to traditional markets. For affluent investors who care not just about yield but capital preservation, this structure matters.

Fixed Income Strategy Revisited

It’s no longer enough for a fixed income allocation to behave like a passive bond ladder. In today’s era of higher rates and slower growth, investors need “fixed income alternatives”—assets that generate income, preserve capital, and cushion market disruption. Private credit fits that description.

Why Portfolios Over $1 M Should Care

If you’re an accredited investor with a significant portfolio, here’s why private credit deserves your attention:

• Income must keep up with lifestyle. A family office or high-net-worth individual often relies on income outside of earned compensation. Every percentage point counts.
• Fixed income returns are likely to be lower or more volatile going forward. Dependence on conventional bonds may mean sacrificing significant income or tolerating higher risk.
• Access to institutional-grade strategies. Many private credit funds previously reserved for large institutions are now accessible to seasoned accredited investors.
• Risk control matters. With higher net worth comes higher stakes. The capital base is large, and losing ground to inflation or rates isn’t acceptable. Private credit helps shrink that risk.

Case Study: Turning a Fixed Income Sleeve into an Engine

Meet John and Sarah, a married couple with $3 million in investable assets. They dedicate $1 million to “fixed income” in their portfolio—traditionally bonds and cash. The problem: the current bond yield is 4.2% average, and duration risk is significant if rates rise.

They decide to allocate $300,000 (30%) of their fixed income sleeve into a private credit fund yielding 8.5% (net) with first-lien real estate–backed loans. The remaining $700,000 stays in bonds and cash.

Outcome over a year:

• Bond income: ~$29,400
• Private credit income: ~$25,500
• Combined income: ~$54,900 → effectively pushing their fixed income yield to ~5.49%
• Plus: reduced portfolio volatility and improved downside cushion

That incremental income can pay for tuition, support retirement, or simply stay invested, compounding over time. For investors over $1 M, that’s meaningful operational impact—not just rounding error.

How to Integrate Private Credit in a Fixed Income Strategy

1. Clarify your income target.
   Determine how much income your fixed income sleeve must generate.
2. Assess your liquidity needs.
   Private credit is less liquid than public bonds. Ensure you have access to cash for emergencies.
3. Choose the right manager and structure.
   Look for: conservative loan-to-value, first-lien security, transparent reporting, strong underwriting.
4. Define allocation size.
   Many HNW investors allocate 20–40% of their fixed income sleeve to private credit, depending on risk tolerance.
5. Reinvest wisely.
   Use distributions to reinvest or support lifestyle needs—either way, treat them as strategic income streams.

The Bottom Line

For portfolios that surpass $1 M and carry the responsibility of maintaining wealth, private credit is not simply “another alternative” — it’s a core component of a modern fixed income strategy. With higher yields, structural protection, and diversification benefits, private credit makes fixed income both more meaningful and more resilient.

If you’re an accredited investor seeking to enhance your fixed income sleeve—turning it from “just safe” into productive and strategic—private lending deserves serious consideration. Talk to our fund manager by booking a free session here.