Data & Research April 15, 2025

Private Credit Matures Into Mainstream Asset Among RIAs

An AFA survey of professionals from U.S.-based RIA firms that research funds and/or select funds for client portfolios, found that half of firms are likely to increase their private credit holdings in 2025.

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Private credit investments have “no doubt” become a mainstream asset class for registered investment advisers and are poised to grow even further, according to a report from Alternative Fund Advisors, which specializes in interval funds. 

The report is based on a survey conducted by an independent marketing company of 121 professionals from RIA firms in the U.S. that research funds and/or select funds for client portfolios. According to AFA, the survey found that firms are likely to increase their private credit allocations, regardless of how much they currently hold.

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Nearly half (48%) of the respondents said they are very likely or likely to increase their allocations to private credit over the next year, while 34% said they are considering it. Only 18% said they are probably not or definitely not going to increase their private credit allocation. The study also found that 40% of allocators polled said they expect to add at least one new fund to existing private credit portfolios in 2025, while 36% said they are considering it. The remaining 24% said they have no plans to add new funds. Additionally, 45% of RIAs using private credit allocate more than 5% of a typical client’s portfolio to the asset class, with 19%—which AFA refers to as “power users”—allocating at least 10%.

Direct lending is by far the most common strategy used by RIA private credit investors, cited by 74% of respondents, followed by asset-based lending and real estate debt at 42% each. An all-in-one multi-sector approach is used by 37% of respondents, while specialty finance and structured finance are employed by 29% each. While direct lending remains the most prevalent strategy, the surveyed companies indicated that they are looking to invest in strategies that diversify beyond direct lending in 2025.

“Specific strategies targeted for future allocations include asset-based lending, real estate debt, and specialty finance,” the report stated. “Because direct lending dominates current allocations it is not surprising that it tends to be less popular as a 2025 addition.”

Firms are eyeing broad-based multi-sector funds more than other strategies to diversify portfolios, according to responses from 57% of respondents. Asset-based lending was the next most popular choice as a diversifier at 39%, followed by real estate debt and specialty finance at 36% and 35%, respectively. Structured finance drew the least interest, with only 21% saying are likely to adopt the strategy.

“We believe the importance of private credit in client portfolios will only increase in 2025 and beyond,” Alternative Fund Advisors CEO Marco Hanig said in a statement. “Our survey findings validated a trend that we’re seeing in the market—firms have moved beyond owning a single private credit fund. They are now utilizing multiple funds and intentionally diversifying across various sub-segments of the market.”

 

Compliance April 14, 2025

Investment Fees, Plan Governance Drive Fiduciary Liability Insurance Pricing

Having an investment adviser on retainer had a moderate impact on pricing, as about half of insurers reported that it was a significant influencer.

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The main drivers of fiduciary liability insurance pricing include: fee levels; the quality of plan committee minutes; and investment adviser and outsourced chief investment officer mandates, according to a recent Aon survey of the largest 15 providers of fiduciary liability insurance.

The survey, examining what key factors drive the pricing of coverage, found about 80% of insurance companies surveyed said conducting periodic plan administration fee benchmarking reviews conducted by a plan’s investment committee makes a significant impact on the pricing of fiduciary liability insurance. For defined contribution plans, 70% said an investment menu that included mutual funds using retail share classes would be a significant driver of premiums, and 40% said plans using mutual funds generating revenue sharing were a significant driver of insurance premiums.

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In addition to a plan sponsor’s process of reviewing fees and fee structures, maintaining detailed committee meeting minutes is important to insurance pricing. Aon found 60% of insurance companies reported that whether a committee takes formal minutes could have a significant impact on pricing. But it does not necessarily matter who takes the minutes, because when asked about the impact of engaging an outside adviser or legal counsel to take minutes, only 10% said it would have a significant impact.

Having an investment adviser on retainer had a moderate impact on pricing, as about half of survey respondents reported that it was a significant influencer, up from 38% in Aon’s 2021 survey. Additionally, whether plan sponsors use an ERISA 3(38) OCIO was viewed as having a significant impact on pricing by 50% of insurance companies.

Overall, Aon found that there is an increasing acceptance of OCIO mandates to reduce a plan sponsor’s exposure to fiduciary liability.

Some insurance companies provided comments in the survey, in addition to responding to questions. One company representative stated that working with reputable firms is important, but the company does not “rank” the various firms. Many respondents said using qualified outside consultants is critical and that a plan that uses no outside investment professional is likely to be unable to purchase fiduciary liability insurance.

In addition, 80% of respondents viewed having employer stock in a defined contribution plan with no cap on investment limits as a driver of higher premium pricing. This figure dropped to 50% when there is a limit on the size of such investments. Given the history of lawsuits related to company stock, Aon found that this was not surprising to hear from insurance companies.

Aon’s survey also included questions about the factors that drive pricing for plan sponsors using pooled employer plans. The five factors that insurance companies said most significantly impact pricing for PEPs were: having company stock; the size of the DC plan assets being transferred to the PEP; the total plan assets held by the PEP; the firm serving as the pooled plan provider; and the employer’s decision to join the PEP.

Some insurance firms reported preferring to work with a more established firm, as opposed to new entrants, while others said that because the Department of Labor has yet to issue fiduciary guidance on PEPs, their firms are still evaluating the potential exposure presented.

Aon conducted its survey between August and October 2024.

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