You know that Your Survival Guy is worried about private equity and credit coming for your 401(k). The industry is in trouble, and Matt Wirz explains the issues in detail in a recent piece in The Wall Street Journal. Wirz notes at the end that while the private credit industry is having issues, the real problem the industry faces is that individual investors will walk away. He concludes:
Fund managers say the performance fluctuations are standard in private credit, which focuses on lending to companies with low credit ratings. But many individual investors have yet to experience such a downturn and if returns stay stuck or even drop, they may walk away.
Fewer investors mean it would be harder for fund managers to raise money, shrinking the supply of capital to refinance existing corporate loans when they come due.
Action Line: For private credit lenders, you can’t talk your way out of what is basically the equivalent of a run on a bank. With individual investors looking to get out of these funds, is it any wonder they are gearing up to dump assets into 401(k) plans? They need new sources of capital. If you are investing in a 401(k), and private equity or credit funds are added as new options, please, do your due diligence and be sure you’re not being asked to clean up someone else’s mess. If you are, walk away. When you want to talk alternatives to 401(k)s, email me at ejsmith@yoursurvivalguy.com. And, click here to subscribe to my free monthly Survive & Thrive letter.
Read the entire series here.
