The Case for Private Equity and Private Credit in a Physician’s Portfolio

Introduction

Physicians are disciplined investors by nature; accustomed to data, long-term thinking, and managing complex financial risks. Yet many still rely almost entirely on traditional public equities and bonds, missing one of the most effective ways to improve portfolio resilience: private equity and private credit.

Once reserved for large endowments and pension funds, these asset classes are now accessible to accredited investors through fiduciary RIAs such as Physician Wealth Advisors (PWA). Even modest allocation, ranging from 5% to 15%, can enhance diversification, mitigate volatility, and improve risk-adjusted returns over time.

Why Private Markets Belong in a Modern Portfolio

1. Diversification and Lower Correlation
   
   Private market investments don’t move in lockstep with public equities and bonds. Because they’re valued less frequently and driven more by underlying business performance than market sentiment, their returns tend to be less correlated with daily market swings. Adding private equity or private credit can help smooth volatility, providing a stabilizing force when public markets turn turbulent.
    
2. The Illiquidity Premium
   
   Private investments reward investors willing to accept limited liquidity in exchange for potentially higher returns. Historically, private equity has outperformed public markets by 3–5% annually over long horizons, while private credit has delivered higher yields with lower volatility than traditional corporate bonds.
   
   Thanks to the advent of SEC-approved interval funds, investors no longer need to commit capital for a decade. These modern structures provide periodic liquidity, typically every 90 days to one year, enabling access to private markets without the complete lockups associated with traditional partnerships.

Private Credit in Focus — What the Data Shows

According to independent research such as the 2024 Private Credit Index (CPCI), U.S. direct lending has delivered annualized returns in the high single digits, with less than half the volatility of equities over the past decade. That consistency has made private credit one of the fastest-growing institutional asset classes globally.

Private credit fills a vital gap left by banks, which have reduced their middle-market lending since 2008. These private loans, often senior-secured and floating-rate, offer higher yields and built-in protection for investors when interest rates rise, translating into reliable income and relative stability.

Private Equity’s Role — Evidence from Institutional Research

Independent institutional studies demonstrate that adding a modest private markets allocation historically improves the risk-return frontier of a traditional 60/40 portfolio.

Even a 5–10% allocation to private equity or private credit has shown potential to increase long-term returns while reducing portfolio volatility, given their unique performance cycles and focus on long-term operational improvement.

Private equity’s structure, anchored in disciplined ownership, strategic transformation, and patient capital, aligns closely with the physician mindset: analytical, data-driven, and focused on long-term outcomes.

Risks and Realities

No investment is without risk, and private markets are no exception. Physicians should understand these key factors:
• Limited Liquidity (but not illiquid): Interval funds offer redemption windows every 90 days to one year, but they are not daily traded.
• Manager Selection: Returns vary widely between top and bottom performers. Diligence is critical.
• Valuation Lag: Private assets are priced periodically, so valuations may not reflect short-term market moves.
• Economic Sensitivity: Borrowers can experience stress during recessions, though senior-secured structures help reduce losses.
• Transparency: Reporting standards have improved, but private assets remain less transparent than public holdings.

Why Physicians Should Care

Physicians face unique financial challenges:
• High income but delayed wealth-building due to years of training
• Compressed time horizons to accumulate and preserve wealth
• Heavy tax exposure and limited time to actively manage investments
• A need for stability and income predictability in later years

Private markets can help address these challenges. A carefully structured allocation to private credit can increase yield and reduce exposure to interest-rate volatility. In contrast, private equity can enhance long-term growth without necessarily increasing public market risk- the result: a portfolio designed for stability, income, and compound growth.

An Illustrative Example

(Source: 2024 Private Credit Index and independent private market outlook studies. For illustration only; not a guarantee of future results.)

Access: Why You Need an RIA

Here’s the key point: quality private equity and private credit funds are not available through retail brokerage platforms. Institutional-quality options are typically offered only through Registered Investment Advisors (RIAs) with approved custodial access.

As an independent RIA, Physician Wealth Advisors (PWA) partners directly with institutional managers to assess suitability, negotiate access, and integrate private holdings into a comprehensive financial plan. We also monitor allocation size, liquidity, and tax implications to ensure these investments complement—not complicate—your broader strategy.

The Long-Term Outlook

Industry research points to continued expansion in private markets due to several structural trends:
• Regulatory shifts have permanently limited bank lending, creating lasting demand for private credit.
• Global demand for yield continues to drive inflows into private credit and infrastructure.
• Institutional investors- like endowments and pension funds- now allocate over 25% of their assets to private markets.
• Evolving access vehicles, such as interval funds, allow individuals to participate responsibly with manageable liquidity terms.

These factors make now an opportune time for physicians to consider incorporating private markets into their financial plan.

Conclusion: Precision and Partnership

You wouldn’t perform a complex procedure without the right tools and a skilled team. The same principle applies to investing. Private equity and private credit can enhance your portfolio’s health—but only when used judiciously and managed by professionals who understand your financial life as a physician.

A conversation with a fiduciary advisor, such as Physician Wealth Advisors, can help determine whether a private markets allocation fits your goals, liquidity needs, and long-term outlook. The goal isn’t simply to chase higher returns, it’s to build a stronger, more resilient portfolio aligned with your life’s work and your family’s future. Reach out today to schedule a one-on-one consultation with a PWA Advisor at - 801-747-0800 or info@pwa.org.