NextFin News - Investors are increasingly pivoting toward hedge funds as the preferred alternative asset class, signaling a potential cooling in the multi-year frenzy for private credit. Iqbal Khan, co-president of global wealth management at UBS Group AG, stated on Thursday that the bank’s ultra-high-net-worth clients are showing a marked preference for the liquidity and tactical flexibility of hedge funds over the locked-up capital structures of private lending. Speaking at a Bloomberg event, Khan noted that while private credit remains a staple of modern portfolios, the "marginal dollar" is now moving more aggressively toward liquid alternatives.
Khan, who joined UBS from Credit Suisse in 2019 and has since become a central figure in the bank’s post-merger integration strategy, is widely regarded as a growth-oriented executive with a deep focus on the "family office" segment. His observations carry significant weight given that UBS manages over $5 trillion in invested assets, making it the world’s largest wealth manager. Khan’s current stance reflects a shift toward capital preservation and alpha generation in a market where interest rate paths remain uncertain and credit spreads have tightened to historical lows.
The shift in sentiment comes as the private credit market, which ballooned to roughly $1.7 trillion globally, faces increasing scrutiny over its lack of transparency and the impact of sustained higher interest rates on floating-rate borrowers. According to Bloomberg, the yield advantage that once made private loans an easy choice over public markets has narrowed. In contrast, hedge funds—particularly multi-strategy and macro shops—have benefited from increased market volatility and the return of price dispersion across equity and fixed-income markets.
This perspective is not yet a universal consensus across the sell-side. While Khan highlights a rotation at the top tier of private wealth, many institutional pension funds and insurance companies continue to increase their allocations to private credit, drawn by the promise of steady, uncorrelated returns. The divergence suggests that the "private credit peak" may be more of a plateau, where sophisticated individual investors move first to capture liquidity while institutional mandates lag behind. Khan’s assessment is more of a real-time sentiment gauge from the world’s wealthiest individuals rather than a definitive signal of a market-wide retreat.
The primary risk to this rotation lies in the performance of hedge funds themselves, which have historically struggled to justify high fee structures during periods of low volatility. If central banks successfully engineer a "soft landing" and market swings subside, the tactical appeal of hedge funds could quickly evaporate. Conversely, a sudden credit event or a wave of defaults in the middle-market sector would validate Khan’s caution, potentially triggering a more systemic flight from illiquid private debt toward the relative safety of daily or monthly-liquid hedge fund vehicles.
Explore more exclusive insights at nextfin.ai.
