Independent financial advisors are turning to private credit strategies. Notably, 60% are planning to reallocate some portion of their public fixed income portfolio to private credit, particularly direct lending, a survey showed.

More than 50 independent financial advisors surveyed by Miami, FL-based turn-key alternative investment platform Crystal Capital Partners revealed that over 20% of advisors had “significant” exposure to private credit within their client portfolios, while over 45% had “minimal” exposure. Almost 30% had no exposure.

Of those who were looking to increase their exposure, over 35% are allocating with new money, while more than 5% are reallocating from other alternative asset classes like private equity or hedge funds.

In addition, 35% were currently planning to reallocate up to 10% of their clients’ portfolios to private credit from public fixed income, over 15% were looking to reallocate up to 25% from public fixed income, and under 5% were looking to reallocate 50% or more from public fixed income.

“Private credit has been the most popular private markets strategy on our platform by far over the past year, and we saw a 30.52% year-on-year growth to December 2023 in allocations,” said Steven Brod, senior partner, CEO, and CIO of Crystal Capital Partners. “We anticipate continued high demand as financial advisors benefit from variable rate term sheets and address interest rate risk in their portfolios.”

The three most common factors influencing advisors’ decision to include private credit strategies were high yield potential (80%), better risk-adjusted returns (80%), and diversification benefits (over 70%).

Direct lending (50%), real estate debt (over 25%), and mezzanine debt and special situations (both over 20%) topped the list of specific types of private credit investments. Other strategies included distressed debt (almost 20%), infrastructure debt (almost 15%), and venture debt (5%). Over 40% said they had no preference.