Private Credit Access Gap Creates Advisor Opportunity

In Brief:

Private credit has emerged as the must-have alternative asset class for advisors seeking higher yields and portfolio diversification beyond traditional 60/40 allocations, yet accessing this historically institutional-only market remains challenging for most investors. George Goudelias from Seix Investment Advisors joined CNBC's Joe Terranova and Virtus ETFs' Jim Jessup to explain how AAA-rated collateralized loan obligations provide a battle-tested pathway into private credit markets through the Virtus Seix AAA Private Credit CLO ETF. The discussion highlighted how private credit CLOs have never experienced losses even during the 2008 financial crisis and 2020 pandemic, while providing floating-rate exposure that reduces correlation to public markets as institutional and retail demand converges around alternative income strategies.

Big Picture Drivers:

• Asset Class Maturation: Private credit has evolved from niche middle-market lending to a mainstream alternative as new managers enter the space and institutional demand drives market growth.

• Advisor Demand Surge: Private credit conversations now occur in nearly every advisor meeting regardless of initial topic, driven by press coverage and client interest in yield-generating alternatives.

• Market Access Gap: Traditional private credit remains largely institutional-only, creating demand for liquid vehicles that provide exposure without minimum investment thresholds or lock-up periods.

• Public-Private Convergence: The lines between public and private credit markets continue to blur as investors seek diversification beyond concentrated equity performance and low-yielding traditional bonds.

Key Topics Covered:

• CLO Structure Basics: Securitized products backed by pools of below-investment grade corporate loans, with AAA tranches receiving first payment priority and 30-40% over-collateralization for enhanced safety.

• Private vs. Broadly Syndicated: Private credit CLOs feature shorter reinvestment periods, superior covenant protection, and direct borrower-lender negotiation versus widely distributed broadly syndicated loan market.

• Historical Performance: AAA CLO tranches have never defaulted or deferred interest payments through major crises including 2008-2009 and 2020, though mark-to-market volatility can reach 5-12 points during stress periods.

• Portfolio Integration Strategy: Floating-rate exposure tied to SOFR combined with low correlation to traditional bonds can actually reduce overall portfolio risk while increasing yields when added to core bond allocations.

Key Insights:

• Safety Record: AAA CLO tranches have demonstrated unprecedented resilience with zero defaults or interest deferrals through every major market crisis, requiring a scenario worse than 1929 for potential impairment according to historical stress testing.

• Yield Positioning: Private credit CLOs offer yield pickup that sits between investment-grade corporates and high yield bonds, providing significant advantages over traditional core bonds through floating-rate exposure and structural protections.

• Risk-Return Paradox: Adding AAA CLOs to traditional core bond portfolios can counterintuitively reduce overall portfolio risk while increasing yields due to superior standard deviation and Sharpe ratios compared to duration-sensitive fixed income.

• Structural Advantages: Private credit CLOs benefit from better covenant protection, enhanced structural support, and more supportive sponsor relationships compared to the broadly syndicated loan market, with shorter duration reducing interest rate sensitivity.

• Market Fundamentals: Leveraged finance companies show strong earnings with 75% of revenues domestically sourced, limiting tariff exposure while benefiting from balanced issuance and paydown activity that supports technical conditions.

• Access Innovation: The CLO ETF structure provides efficient, scalable access to the most liquid portion of private credit markets at relatively low cost, positioned to play a significant role in alternatives allocation as retail and institutional markets converge.

Memorable Quotes:

• "Private credit, whatever the topic of the meeting, when I'm in the field, it comes up in nearly every meeting." - Jim Jessup, explaining the surge in advisor interest across all client conversations

• "We strongly believe that the safest way to access private credit is through AAA rated tranches of a CLO ETF." - George Goudelias, outlining their investment philosophy for retail access

• "You would need even probably worse than a 1929 scenario for these tranches to be impaired." - George Goudelias, emphasizing the extreme safety cushion built into AAA CLO structures

• "It's almost counterintuitive, but if you add AAA CLOs to, let's say, a traditional core bond portfolio, your risk goes down and your yields go up." - George Goudelias, describing the portfolio construction benefits

• "This is not a cash replacement. This is an investment portfolio. We would not want to hold this out as a cash-like product." - Jim Jessup, setting proper risk expectations for financial advisors

The Wrap:

The discussion revealed how private credit access through AAA CLO tranches represents a mature solution for advisors seeking alternatives to traditional portfolio construction, offering institutional-quality exposure with retail-friendly liquidity and transparency. As the asset class gains mainstream acceptance similar to bank loans' evolution over the past decade, CLO structures provide a tested pathway for capturing private credit premiums while maintaining the safety and diversification benefits that sophisticated investors demand. The convergence of retail and institutional interest around alternative income strategies positions private credit CLOs as a foundational component for modern portfolio construction beyond traditional 60/40 limitations.