Private credit fintech Percent has launched SMAs focused on private credit investments. The SMAs will invest in asset-backed loans valued at under $25 million, with the firm providing deal selection, servicing and portfolio optimization. Percent executives estimate they can deliver risk-adjusted returns between low double digits and mid-teens. The firm will also work with RIAs to turn its SMAs into white label products for their investors.
The SMAs will have an annualized management fee of about 1%, and Percent will charge an additional fee of 10% of the coupon rate of any deal included in the SMAs. Historically, the firm has required a minimum net worth of $250,000 for participating investors, but it is looking to lower that figure.
Percent’s platform focuses on raising money from retail investors, family offices, RIAs and credit funds for non-bank lenders and underwriting the transactions. The lenders the company works with include small business lenders, consumer lenders and litigation lenders. According to Percent CEO Nathan Chu, “There are hundreds of thousands of small business loans and consumer loans that make up any one of these [lenders’] investments, so it’s just a significantly better position to be in for investors. And then this new SMA product adds another layer of diversification on top of the original diversification to better protect investors.”
The private wealth channel has displayed a growing appetite for private credit investments in recent years because, in a rising interest rate environment, they can deliver higher-than-average yields alongside current income. However, that appetite has dampened somewhat in recent months as market volatility and tariff wars have created concerns about potential defaults.
Percent has already been providing its existing investors with a customizable product Chu describes as a “blended note.” The firm created approximately 50 of these products for individual investors and family offices and has been adding a few every month for retail investors who want to access structured product investments. Since early September, the firm has transferred the blended notes into the SMA program.
“We are in an interesting time in private credit where the Apollos and the Blackstones and the Ares of the world are going further and further down market, offering more products for a younger retail base with a smaller dollar value,” Chu said. “That’s all fine and it’s a great product to invest in. For us in particular, we thought there was a huge opportunity for investors to get additional diversification that they just can’t get in those products. These under $25 million transactions in general will provide a lot better returns, but a comparable risk level, just because it’s so diversified across.”
The move is part of a recent uptick in asset managers and advisors incorporating private market products into SMAs and model portfolios. In recent weeks, firms ranging from Fidelity to Wells Fargo have added private market options for their wealth clients. In addition, Vestmark announced that it partnered with alternative investment platform iCapital and asset management giant BlackRock to add private market assets to its tax-managed UMAs for RIAs on the Dynasty Financial Partners’ network. Vestmark’s rival Envestnet also struck deals with BlackRock, Franklin Templeton, State Street Global Advisors and Fidelity to develop custom investment portfolios for advisors using its platform.
This trend has also coincided with the rise in popularity of SMAs overall. Research firm Morningstar estimates that between year-end 2022 and mid-year 2024, assets in tax-managed SMAs rose by 67%, reaching $500 billion.
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