Private credit offers something public markets rarely manage: yields that look generous, prices that barely appear to move, and statements arriving without a frightening red line every afternoon.
That calm can be wonderfully misleading.
Private credit funds lend directly to businesses outside traditional banks and public bond markets. Pension funds, insurers, and wealthy investors have poured money into the asset class, which has expanded to approximately US$3.5 trillion globally.
Now, fund managers increasingly want ordinary investors to join the party. Before placing private credit inside a Registered Retirement Savings Plan (RRSP), Canadians should ask why the returns are higher and whether there’s a more liquid way to benefit from the trend.
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Where does the extra income come from?
Private lenders often finance medium-sized, heavily indebted, or private-equity-owned companies that can’t obtain attractive bank financing. Borrowers accept higher interest rates in exchange for speed, flexibility, and customized loan terms.
However, the higher yield isn’t a charitable donation from the borrower. It compensates investors for credit risk, complexity, high fees, and limited liquidity.
Unlike publicly traded bonds, private loans don’t receive fresh market prices every second. Fund managers estimate their value using borrower performance, comparable loans, and financial models. Smoother account statements can therefore reflect less frequent pricing rather than less economic risk.
Liquidity deserves more attention
Many private credit funds are described as semi-liquid. Investors can request withdrawals periodically, but managers may cap or delay those requests when too many people head for the exit.
Blackstone’s large private credit fund recently received approximately US$4.3 billion in quarterly repurchase requests, equal to roughly 10% of its outstanding shares. The fund limited redemptions to 5% of net asset value.
Liquidity matters inside a Registered Retirement Savings Plan (RRSP). The account must eventually mature, generally by the end of the year the owner turns 71. Many Canadians then convert it into a Registered Retirement Income Fund and begin mandatory withdrawals. Therefore, a difficult-to-sell investment becomes rather inconvenient when the government expects money to emerge on schedule.
A liquid stock alternative
Instead of purchasing a private credit fund directly, I’d consider Brookfield Asset Management (TSX: BAM). The publicly traded asset manager allows investors to benefit from growing demand for private assets without personally committing their RRSP money to illiquid loans.
BAM stock manages investments across credit, infrastructure, renewable power, real estate, and private equity. Its credit platform, which includes Oaktree Capital Management, oversees approximately US$416 billion.
BAM stock earns management fees and performance-related income from the capital entrusted to it. That means shareholders can benefit as institutions and wealthy individuals allocate more money to private credit.
Second-quarter fee-related earnings increased 20% year over year to US$808 million. Fee-bearing capital reached US$672 billion, up 19%. Near $66, the shares trade around 31 times trailing earnings and offer a dividend yield of approximately 4%. That valuation isn’t cheap, although BAM stock’s asset-light structure and recurring management fees provide a stronger growth case than many traditional income stocks.
Considerations
Buying BAM stock shares solves the private fund’s redemption problem. BAM stock trades throughout the day on the TSX and is generally a qualified RRSP investment.
It doesn’t remove investment risk. A private credit downturn could reduce performance fees, slow fundraising, and cause clients to become less enthusiastic about new funds. BAM stock can also fall sharply, even when the privately valued assets it manages appear stable.
The company is also broader than private credit. That provides diversification, but it means investors are buying exposure to several alternative asset classes rather than one neat lending strategy. I’d hold BAM stock as part of a diversified collection of Canadian stocks, not use it as a replacement for the RRSP’s bond allocation.
Bottom line
Private credit can offer attractive income and access to loans unavailable through public markets. It can also bring opaque valuations, borrower defaults, substantial fees, and an exit door that narrows during stressful markets.
For most Canadians, I wouldn’t place a direct private credit fund inside an RRSP. BAM stock offers a more liquid way to benefit from the industry’s growth, supported by rising fee-bearing capital and fee-related earnings.
Wealthy investors may be comfortable locking money away for years. The average RRSP investor can own the company collecting their fees instead.
