The Rise of Total Portfolio Approach - 9

were willing to move their portfolios out on the risk curve
to achieve a higher yield, while minimising duration risk
via a floating rate structure. Today, cash is an attractive
asset class once again. Money markets and savings accounts
were yielding somewhere between 4-5% and
SOFR (Secured Overnight Financing Rate) was yielding
over 5% in 2023.
Private credit, particularly direct lending, still provides an
attractive value proposition from an income perspective,
as shown in Exhibit 5. However, the benefits are more nuanced
than historical, and it's no longer a play for yield.
With private loans paying over 10% in most developed
economies, it's important to remember that these floating
interest rates, while a benefit to investors, are a cost
of capital to small and medium-sized businesses.
As many investors will tell you, it's easy to lend money ...
it's far more difficult to get it back. We are likely to see
further dispersion of returns within these strategies,
particularly between established managers and new
entrants. The strength of corporate balance sheets,
profitability, and covenants will be more important
than ever as defaults inevitably increase and money
comes due.
Exhibit 5: Direct Lending vs. Bond Yields
Source: JP Morgan, MarketWatch
9

The Rise of Total Portfolio Approach

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