What’s Ahead:
- Private credit’s rapid growth has increased opacity, complicating risk assessment and client conversations
- Transparency is a competitive and fiduciary imperative
- Defined outcome solutions offer clearer risk profiles without sacrificing portfolio diversification
What’s that line from Peter Lynch? “Know what you own and why you own it.” That’s easier than ever today, with low-cost and liquid equity index ETFs, broad-based bond funds, and clean spot commodity or even crypto products. The problem is, just having a firm grasp of a modern portfolio won’t protect a client when cross-asset correlations go to one.
And we’ve seen plenty of instances where volatility spikes and even “safe” investments plunge along with the S&P 500. Pair macro shockwaves such as the COVID crash of March 2020, the great bond bear market of 2022, and the Liberation Day sell-off not long ago with regulatory shifts in the private credit world, and more investors now hold stakes in opaque, high-yield private credit funds.
Let’s double-click on that. Private credit (and “old alternative investments” writ large) is commonly framed as a sophisticated tool designed to enhance returns, quell portfolio volatility, and diversify risk. But it often brings complexity that obscures what retail investors actually own — not exactly the quintessential Peter Lynch asset.
Given evolving risks and the gold rush into private credit, we must take a closer look at the downside of this now multitrillion-dollar niche. Clearly, the secret is out, but we believe the risks are not fully understood.
The Modern Macro Backdrop
For years, as private credit emerged as its own asset class, financial advisors and their clients benefited from big yields and truly diversified returns. The problem is, when an investment goes mainstream, either its alpha dries up or it simply becomes a source of systemic risk itself.
In the 2010s, amid the zero interest rate policy (ZIRP) era that abruptly ended in 2022, the wealth management industry was willing to accept the then-compelling risk-return tradeoff. Yes, private credit was complex, with strategies operating like black boxes, but yields were massive compared to the 2%–3% rate on the benchmark 10-year Treasury note.
Fast-forward to today, and it’s possible that the easy money has already been made, so to speak. Yield spreads have narrowed, and new private credit investors face greater risk relative to the potential upside.
What’s more, private credit remains behind a curtain — just look at the recent “cockroaches” that have emerged in the industry (as JPMorgan CEO Jamie Dimon dubbed it). That limited visibility has led many to question what systemic stresses remain hidden from view, waiting to be brought to light by the next period of market volatility.
It’s not entirely a grim situation, though. “New alternatives” are available, including protective investments that offer transparency, liquidity, and professional management. Structured Note Separately Managed Accounts (SMAs) are increasingly seen as alternatives to alternatives, offering uncorrelated income and true diversification from macro threats.
Advisors are partnering with Halo’s SMA managers to deliver transparent, defined-outcome strategies designed to help retail investors reach their goals without taking on unknown risks.
The Legacy Problem with Opaque Alternatives
You can’t go more than a segment or two watching financial TV without hearing about the latest developments — good or bad — within private credit. It’s easy to cite the impressive and rapid AUM growth since immediately after the 2008 Global Financial Crisis. Increasingly, however, advisors are now asking not just what the yields are on such alternatives, but what the risks entail. Recent credit events underscore that just because money is flowing in, it’s not always a safe bet.
The truth is, we are in a new era. Interest rates are higher everywhere compared to the ZIRP period. Advisors are in control — they now have a range of fixed income solutions to offer clients. It used to be — call it five or 10 years ago — that private credit was a lucrative and often exclusive club to be in. Yields near 10% featured modest risk with low correlation to traditional stock and bond markets.
Under that appealing veneer lies a structural challenge: opacity.
To this day, many private credit “opportunities” operate as blind pools. Investors commit capital without knowing — let alone understanding — the portfolio composition, when capital will actually be deployed, or how the fund’s risks compare to their existing allocations.
Once invested, a veil separates the advisor from what’s going on under the hood. Limited visibility into underlying borrowers, credit quality, duration, and concentration makes ongoing due diligence difficult. Furthermore, private credit product valuations are periodic, masking the actual nature of their volatility.
All of that may seem fine during bull markets and calm periods in the credit space. But when turbulence arrives (as it inevitably does), the tide goes out, and we see who was swimming naked — to borrow a line from Warren Buffett. For fiduciary advisors, transparency is paramount. Without it, there is a barrier to proper financial stewardship and, ultimately, client trust when markets turn volatile and uncertainty rises.
Transparency, in this context, is not about disclosure for disclosure’s sake. It is about clarity of ownership, measurability of risk, and confidence in financial outcomes.
Transparency as a Fiduciary Imperative
Just as we highlighted the importance of flexibility for client portfolios in a separate piece, transparency is likewise a linchpin of strong client relationships. Advisors are expected to understand what they allocate capital to, explain it in plain language, and continuously monitor it. That’s a tall task with private credit, even for the savviest and most experienced financial professionals.
In short, black-box private credit vehicles strain the fiduciary standard. If you, the advisor, cannot easily access the strategy and discern the true risk factors, it becomes harder to argue that it is appropriate for a client’s objectives. What’s more, investors with a low ability, willingness, or need to take risk face an even higher hurdle.
Protective investment strategies, such as Halo’s Structured Note SMAs, offer enhanced transparency compared to traditional private alternatives. These professionally managed strategies are grounded in public market investments, such as the S&P 500 or other broad indexes — benchmarks advisors (and many of their clients) already know well. They also feature observable market prices and defined outcome payoff structures. Finally, SMAs are transparent, allowing advisors to answer fundamental client questions confidently:
- What are the risks today?
- What return outcomes are possible?
- How does this portion of my portfolio behave across different market environments?
In an industry moving toward greater accountability, transparency is inseparable from fiduciary duty.
Defined Outcomes & New Alternatives
Transparency breeds confidence. When investors have a firm grasp of what their returns and income yield might be, they can invest with conviction. Contentment and peace of mind are not quantifiable, of course, but they are ultimately what advisors strive to deliver.
Halo’s defined-outcome protective investment strategies are designed to do just that. By contrast, private credit performance is variable and reliant on factors often understood only by boots-on-the-ground fund managers. Private credit risks can be significant, and with only periodic marks, there is commonly a gap between actual and reported value.
Halo’s Structured Note SMAs are designed so that downside protection levels and potential upside parameters are established on day one. This structure replaces uncertainty with intention. Advisors and clients alike can clearly see how an investment is expected to behave across different scenarios.
Picture yourself seated with a nervous client who has read headlines about market volatility or an impending financial doomsday scenario. Rather than explaining abstract risks or hypothetical outcomes tied to a private credit instrument, advisors can point to specific parameters that govern performance within their SMA.
Ease of Integration
Protective investment strategies are not only a value-add for a wide range of client types; they also make life easier for advisors — an operational benefit that should not go unnoticed. Structured Note SMAs integrate cleanly into existing advisory workflows, including those used by RIAs operating on platforms such as Envestnet, SMArtX, and Dynasty.
In this sense, transparency extends to middle- and back-office operations. Reducing administrative burden behind the scenes keeps costs in check and simplifies compliance. That, in turn, frees advisors to spend more time delivering value to individuals, families, and small business owners — and less time explaining unnecessary complexity.
Over the long haul, both clients and advisory practices benefit.
Transparency as a Competitive Advantage in 2026
Investors are more engaged and inquisitive than ever. As a result, transparency is now a business differentiator for wealth managers. To be blunt, stumbling through what a private credit fact sheet really means puts your practice at risk. That private credit black-box strategy doesn’t just threaten client portfolios — it can also jeopardize your reputation and book of business.
Halo’s Structured Note SMAs and defined-outcome strategies can help RIAs stand apart — from client interactions to operational simplicity to professional credibility among peers.
Please see our Halo Disclosure Page for important disclosures
An investment in Structured Notes may not be suitable for all investors. These investments involve substantial risks. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Content and any tools discussed are provided for educational and informational purposes only. Halo Investing makes no investment recommendations and does not provide financial, tax, or legal advice. Any structured product or financial security discussed is for illustrative purposes only and is not intended to portray a recommendation to buy or sell a particular product or service.
