Perpetual’s Greg Stock explains why investors looking for income should focus on credit quality, diversification and risk-adjusted returns — not yield alone
- Private credit quality matters more than yield
- Diversification helps manage risk through cycles for private credit
- Find out about Perpetual Credit Income Trust (ASX:PCI)
PERPETUAL'S Greg Stock, head of credit research and senior portfolio manager of Perpetual Credit Income Trust (ASX:PCI), says investors looking for income should focus on credit quality, diversification and risk-adjusted returns — not yield alone.
Why private credit appeals to income investors
With volatility across equities, property, energy and commodity markets, the appeal of more predictable income is easy to understand. For investors seeking yield without taking on unnecessary risk, credit and fixed income can play an important role in helping preserve capital while generating regular distributions.
But recent concerns around private credit have put the spotlight back on a key question: not whether investors should avoid credit altogether, but how they can distinguish between well-managed credit exposure and higher-risk parts of the market.
Private credit is not one single market
According to Greg Stock, the most important starting point is to understand that private credit is not one single market.
“Private credit is a spectrum and there are different subsectors within private credit, and they have increased risk and increased return,” says Stock.
Some higher-risk areas, such as distressed credit, special situations and bilateral property development or construction loans, may offer higher returns, but they can also carry more cyclical and structural risk.
“We deliberately don't invest in the highest risk point of private credit,” says Stock.
How to assess private credit risk: the three Cs
He points to the “three Cs” of credit — cash flow, collateral and character — as a useful framework. Where cash flow is absent or uncertain, investors need to be especially wary.
A diversified approach to private credit investing
PCI’s approach is deliberately selective. Rather than chasing yield across the riskiest parts of the market, the trust focuses on diversified exposure across sub-sectors, issuers and geographies. It holds a core allocation to investment-grade assets while also investing in higher-yielding areas where the team believes the risk is appropriately compensated.
Private credit and property: structure matters
That includes parts of private credit such as senior secured loans to large corporates with strong business profiles, as well as residential mortgage-backed securities and private warehouses backed by large, well-underwritten loans.
“Property can be a worthwhile and credit worthy investment if it's appropriately structured and backed by established income producing properties,” explains Stock.
“We also invest in established property companies with long track records, strong balance sheets and high-quality income producing assets. This includes well-known property groups such as Scentre group, Goodman group and BWP Property Group.”
Looking beyond yield: private credit and risk-adjusted returns
The broader lesson for investors is that yield should not be assessed in isolation. A higher return may simply reflect higher risk.
In a market where investor demand for income remains strong, experience through credit cycles, diversification and a clear view on where not to invest can be just as important as identifying opportunities.
For investors seeking monthly income, the priority should be finding credit exposure designed to manage risk through the cycle — not simply the highest yield on offer.
Frequently asked questions
What is private credit?
Private credit is lending that happens outside public bond markets, usually direct loans to companies or asset-backed structures. It covers a wide spectrum from senior secured loans to large corporates with very different risk and return profiles at each end.
How do investors reduce private credit risk?
Diversification across sub-sectors, issuers and geographies is the main defence, alongside a core allocation to investment-grade assets. Just as important is knowing where not to invest, which is why experience through multiple credit cycles matters.
Where does private credit fit in a client's income allocation?
It typically sits alongside fixed income as a source of regular, more predictable distributions for clients seeking income without unnecessary risk. The role it plays depends on the client's objective — capital preservation, monthly income, or both — and on how the exposure is diversified across sub-sectors, issuers and geographies.
About Greg Stock and Perpetual Credit Income Trust (ASX:PCI)
Greg Stock is a Senior Portfolio Manager and Head of Credit Research with Perpetual’s Credit and Fixed Income team.
Greg has more than 30 years of investing experience, including over 20 at Perpetual. He has researched and analysed credit markets on the buy side and sell side for more than a decade, through multiple cycles.
Greg is portfolio manager for several of Perpetual's credit and fixed income funds, including Perpetual Credit Income Trust (ASX:PCI).
Want to know more? Contact a Perpetual account manager
