Key Takeaways
- • The State of Wisconsin Investment Board (SWIB) says its private credit portfolio represents approximately 4% of the Core Fund and is diversified across industries, geographies, investment managers, and thousands of underlying companies.
- • SWIB reports annual returns of approximately 11% to 13% after fees for its private credit portfolio over the past one-, three-, and five-year periods, according to the Wisconsin Department of Employee Trust Funds (ETF) publication.
- • SWIB distinguishes its institutional, long-term fund structures from open-ended vehicles that permit investor redemptions, which are the focus of recent private credit headlines.
- • Senior Portfolio Managers Lin Maung and Beth Holzberger say the portfolio is designed to be durable over 10 to 15 years, with defaults expected to rise somewhat from historically low levels.
Summary
The Wisconsin Department of Employee Trust Funds (ETF) has published a piece outlining the State of Wisconsin Investment Board's (SWIB) approach to private credit, an asset class that has drawn increased scrutiny amid recent headlines on credit quality, liquidity and performance under weaker economic conditions. The article defines private credit as lending to companies outside the traditional public bond market, noting that the market has grown from a few hundred billion dollars after the 2008 financial crisis to roughly $2 trillion.
Senior Portfolio Manager Lin Maung argues that private credit structures can be more flexible than public markets, and that companies may choose them when speed and certainty matter even if other financing is available. Maung said SWIB has built the portfolio to be durable over 10 to 15 years rather than over the next six to 12 months.
SWIB Senior Portfolio Manager Beth Holzberger said the recent headlines largely concern open-ended investment vehicles that allow investor redemptions, whereas SWIB invests through institutional structures in which the fund's long-term nature matches that of the underlying loans. Private credit represents approximately 4% of the Core Fund, and the portfolio also includes other income-generating investments that reduce reliance on any single market segment.
The article acknowledges that private credit can face challenges in periods of economic stress and that defaults are expected to increase somewhat from historically low levels. SWIB says it monitors underlying investments continuously and works with managers focused on risk management and loss prevention. Holzberger said most companies that encounter stress will still be good credits, adding that lenders benefit from sitting at the top of the capital structure with significant equity beneath them.
According to the article, SWIB's private credit portfolio has generated annual returns of approximately 11% to 13% after fees over the past one-, three-, and five-year periods, contributing to the Core Fund and supporting the retirement security of Wisconsin Retirement System (WRS) members. The piece is part of a publisher-led explainer and promotes episode 38 of The SWIB Podcast for further detail.
Senior Portfolio Manager Lin Maung argues that private credit structures can be more flexible than public markets, and that companies may choose them when speed and certainty matter even if other financing is available. Maung said SWIB has built the portfolio to be durable over 10 to 15 years rather than over the next six to 12 months.
SWIB Senior Portfolio Manager Beth Holzberger said the recent headlines largely concern open-ended investment vehicles that allow investor redemptions, whereas SWIB invests through institutional structures in which the fund's long-term nature matches that of the underlying loans. Private credit represents approximately 4% of the Core Fund, and the portfolio also includes other income-generating investments that reduce reliance on any single market segment.
The article acknowledges that private credit can face challenges in periods of economic stress and that defaults are expected to increase somewhat from historically low levels. SWIB says it monitors underlying investments continuously and works with managers focused on risk management and loss prevention. Holzberger said most companies that encounter stress will still be good credits, adding that lenders benefit from sitting at the top of the capital structure with significant equity beneath them.
According to the article, SWIB's private credit portfolio has generated annual returns of approximately 11% to 13% after fees over the past one-, three-, and five-year periods, contributing to the Core Fund and supporting the retirement security of Wisconsin Retirement System (WRS) members. The piece is part of a publisher-led explainer and promotes episode 38 of The SWIB Podcast for further detail.
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