Why flexibility pays in private credit

Private credit’s appeal is rooted in its distinct characteristics. Historically, this asset class has demonstrated low correlation with equities and traditional bonds, enhancing the diversification benefits at a time when stock-bond correlations are increasingly unstable. The resilience of private credit across economic cycles is evident in its strong risk-return profile, consistently outperforming public alternatives such as U.S. high yield or leveraged loans.

Diversification and flexibility are foundational principles of sound investing. While these concepts are familiar in public markets, they are arguably even more critical in private credit, given its illiquidity, bespoke underwriting and cyclical deal flow.

A dynamic, multi-sector private credit strategy delivers stable income and compelling risk-adjusted returns by diversifying across collateral types, industries, geographies and positions in the capital structure. Tactical allocation becomes possible when spreads and fundamentals become dislocated, allowing investors to capture opportunities while maintaining disciplined underwriting.

In practice, flexibility in private credit is the ability to allocate capital across a wide range of segments and adjust exposures as conditions change — without compromising on underwriting quality. This breadth encompasses:

Borrower types and collateral

Cash-flow lending to middle-market corporates — sponsor-backed and non-sponsor — asset-based finance secured by receivables, inventory or equipment and real assets including commercial real estate and infrastructure debt.

Capital structure 

First-lien senior secured loans, second lien and mezzanine debt and opportunistic or distressed credit when valuation gaps arise.

Sector exposure 

Technology, healthcare, aviation, shipping, equipment leasing and specialty finance including intellectual property (IP), royalties and net asset value (NAV) financing.

Geographic diversification

Multiple regions to add independent return drivers.

A flexible strategy also incorporates credit secondaries, which enhance portfolio performance through higher risk-adjusted returns, faster deployment and improved liquidity. By acquiring interests in existing private credit funds at discounts to their net asset value, investors gain immediate exposure to seasoned, income-generating assets and can benefit from capital appreciation as loans mature or are repaid at par.

Illiquidity is a defining feature of private credit. Commitments are drawn over time, deployment is not immediate, and some funds may return capital before portfolios are fully ramped. Flexibility must be embedded in portfolio design, pacing and governance.

Recent headline risks in credit have underscored that not all private-credit strategies are created equal. Selecting the right manager is critical — investors need partners with disciplined underwriting, strong monitoring and proven workout capabilities.

In Canada, banks and bank-backed lenders offer distinct advantages in the middle market, including deep regional origination networks, local regulatory knowledge, long-standing borrower relationships and strong capital positions. As Canadian institutions increasingly step into private-credit roles, the ability to source high-quality borrowers, structure appropriate terms and respond rapidly to borrower stress is more important than ever.

CIBC Asset Management offers a multi-sector Diversified Private Credit Fund that exemplifies the benefits of flexibility. The strategy allocates across core lending verticals with a risk-aware approach, focusing on senior secured exposure and leveraging established lending channels across North America and Europe. The platform’s broad pipeline spans corporate, asset-based, real estate, technology and healthcare credit, and is complemented by select co-investment opportunities in specialized areas.

For further information on how this strategy — or other private credit opportunities — might fit within your portfolio, we encourage you to reach out to your CIBC representative.