Cresset Capital has turned to private credit to boost client returns as President Donald Trump's on-off tariffs policy stokes turbulence across financial markets.
The Chicago-based company, which manages more than $65 billion on behalf of clients, has increased its allocation to private credit to as much as 20% in one of its strategies, said Chief Investment Officer Jack Ablin. Cresset wasn't involved in that market at all before 2022 because the risk was too high relative to returns, he said.
Private credit has ballooned into a $1.7 trillion asset class in recent years and has the potential to expand to $3.5 trillion by 2028, according to some estimates. That's providing opportunities at a time when equities have experienced massive swings as a result of Trump's trade wars.
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"Private credit is really one of the only private asset classes where you actually get an illiquidity premium," Ablin said in an interview at Bloomberg's Chicago office. "Our clients are young, and they're willing to take risks. They are not afraid of private markets."
Trade policy has been volatile lately, as the Trump administration slaps on duties and, at times, quickly reverses course, delays them or grants exemptions for a number of products. That uncertainty has been reflected on the S&P 500 Index, which fell 19% between its February peak and its April bottom. The gauge has since rebounded 20%.
Private credit is providing better opportunities, as Cresset increases allocations in its diversified income strategy, which aims to provide cash returns in the three-to-seven-year time horizon, he said. Ablin also attributed the higher risk appetite to the fact that more than half of Cresset's clients are under 60 and about 30% under 50.
"We feel pretty comfortable about it over certainly five years," he said, adding that while there's criticism of the market's growth, private credit has simply replaced lending from banks. "There aren't more borrowers, they're just different lenders."
Analysts have been cutting their estimates for 2025 earnings for the S&P 500 and currently expect growth of 9.1%, according to Bloomberg Intelligence data. That's down from a March 21 forecast of 11.6%.
Still, stocks gained in that period, making the market look "expensive," Ablin said. That's why he has also increased allocation to gold and emerging markets, and recommended being underweight the U.S.
Cresset has shifted about 5% out of equities and into intermediate-term bonds, whose steady rates of around 5.3% could be locked in without having to "suffer" a potential 18% to 20% volatility in stocks.
"I'm glad I don't run a hedge fund, because I would have absolutely no idea how to navigate this market," Ablin said.
— With assistance from Alyce Andres.
