Private credit isn’t just a trend anymore—it’s become one of the most talked-about asset classes among accredited investors looking for stable income and lower volatility. But as with anything in your portfolio, timing and allocation matter. Knowing when to adjust private credit exposure can help you smooth out risk, improve income consistency, and avoid chasing yield at the wrong moment.

Across the U.S., especially here in California where many investors have tech-heavy portfolios, private credit has become a reliable counterweight. But in 2025, the market looks a lot different than it did even a year ago. New surveys, institutional data, and macro signals give us a clearer picture of when investors should lean in—and when to take a step back.

Here’s a practical, grounded guide for accredited investors thinking about how much of their portfolio should sit in private credit right now.

When to Increase Your Allocation to Private Credit

1. When institutional momentum is strong and quality is improving

Institutional investors are often the early signal for where the asset class is heading. According to a late-2025 Nuveen survey, nearly half of institutional allocators plan to increase exposure to private credit, citing stronger lender protections and more disciplined underwriting compared to 2021–2023 cycles.

For individual accredited investors, this institutional shift usually means:

• deal quality is improving
• spreads are still attractive
• lenders can lock in better covenant terms
• borrower demand remains high

In other words, it’s a favorable period to increase allocation—assuming the portfolio is managed by a disciplined lender.

2. When public markets feel unstable or directionless

In 2025, many investors feel that public equities are disconnected from real economic fundamentals. Private credit, especially asset-backed lending, is less tied to market sentiment and more grounded in collateral performance.

The With Intelligence 2025 Private Credit Trends report shows fund managers expecting continued fundraising strength precisely because investors want stability in volatile environments.

If your public portfolio is feeling like a roller coaster, increasing private credit exposure can help rebalance volatility without moving into cash.

3. When yields remain attractive in a higher-rate environment

The Fed’s slower-than-expected path to rate cuts has widened the opportunity window for private credit. Many lenders continue to price loans with elevated yields, and floating-rate structures allow investors to capture upside as long as rates stay higher.

More importantly, lenders are negotiating better protections, as reported in Generali AM’s Private Debt Outlook 2025.

A high-rate cycle + stronger covenants = a compelling moment to increase exposure.

4. When you’re looking for predictable income

This is one of the biggest reasons California investors increase allocation. Whether you’re managing early retirement planning, post-liquidity cash flow, or a real estate purchase timeline, consistent monthly or quarterly income is a huge advantage.

Private credit works especially well when:

• you value stability over growth
• you want passive income without public-market shocks
• you’re building a reliable, tax-efficient income stream

If your income strategy has become too dependent on dividends or stock performance, this is the time to lean more heavily into private credit.

5. When early recession signals appear (but not full distress)

Counterintuitively, private credit often performs well in early recessionary periods. Borrowers look for faster execution and flexible structures, which non-bank lenders offer. And lenders can negotiate stronger spreads during uncertainty.

Coller Capital’s mid-2025 Global Private Equity Barometer highlights that private credit and secondaries were the two strongest strategies LPs expected to increase, precisely because they offer downside protection in uncertain macro conditions.

Early slowdown = opportunity. Full recession = caution. We’ll get to that next.

When to Decrease Private Credit Exposure

1. When you have real, upcoming liquidity needs

Private credit usually isn’t as liquid as treasuries, ETFs, or cash-like instruments. If you’re planning:

• a property purchase
• a business investment
• a relocation
• major family expenses

…it might be smart to temporarily reduce exposure.

The best time to decrease allocation is before a liquidity event, not during it.

2. When credit conditions weaken or spreads compress

Not all private credit vintages are created equal. Reuters reported in May 2025 that Moody’s flagged risks as retail-accessible private credit vehicles expanded, noting that some lenders were accepting weaker deal structures in pursuit of growth.

This is not a red flag about the entire asset class—but it is a sign to scrutinize allocations.

If you see:

• rising LTVs
• thinner spreads
• weaker covenants
• more speculative borrowers

…it’s time to slow down and reassess.

3. When your portfolio is drifting out of balance

This happens quietly. Because private credit tends to produce steady returns, its weight in your portfolio may grow faster than other assets—especially in years where public markets underperform.

If your original target was 10–20% but it creeps to 30–35%, consider trimming exposure and bringing things back into balance. Responsible portfolio hygiene.

4. When severe recession risks increase

Late 2025 brought increased warnings from Morningstar DBRS that private credit defaults could rise in 2026, especially among lenders who took on lower-quality borrowers during competitive periods.

This doesn’t mean exit the asset class. It simply means:

• assess the credit quality of your manager
• confirm their underwriting discipline
• avoid lenders who stretch for yield

In downturns, who you’re invested with matters just as much as what you’re invested in.

How Investors Should Think About Allocation Strategy

A smart private credit allocation is not a fixed percentage. It moves with your financial life and the macro environment.

A healthy strategy includes:

• a target range (often 10–30%)
• clear liquidity buckets so private credit isn’t used for short-term cash
• 6–12 month allocation reviews
• an income plan that matches distributions to real needs

Adjust private credit exposure the same way you adjust real estate or equities—not reactively, but intentionally.

Where LBC Capital Income Fund, LLC Fits

Investors who increase allocation during strong vintages typically look for:

• conservative loan-to-value ratios
• high-quality California real estate collateral
• steady monthly distributions
• transparent reporting
• real underwriting discipline

LBC Capital Income Fund, LLC positions itself in that category, focusing on predictable, asset-backed lending with strict deal selection. For investors timing their allocation increases or decreases, that discipline becomes especially valuable.

What to learn from this?

Private credit can be a powerful stabilizer—if you know when to dial exposure up or down.

Increase when:

• institutional investors are moving in
• markets feel unstable
• rates favor better yields
• you want predictable income
• early recession signals appear

Decrease when:

• you need liquidity
• underwriting conditions weaken
• your allocation drifts too high
• deeper recession risks emerge

The goal isn’t market timing. It’s alignment. Adjust private credit exposure so your portfolio actually reflects the life you’re living—and the future you’re building. Reach out to talk to our fund manager.